The Crisis Of The United States

1305 WordsMay 4, 20176 Pages
As a result of the crisis, there were many different impacts on both the U.S. and global economy and one of them being buyouts and acquisitions within the U.S. financial institutions. Just to name a few of the acquisitions and failures that occurred due to the crisis, Lehman Brothers, Merrill Lynch and Bear Stearns were among the largest investment banks. “Lehman Brothers declared bankruptcy, Bear Stearns was bought by JP Morgan Chase and Merrill Lynch was bought by Bank of America.” (Chang, 14) Bank of America also purchased Countrywide Financial, which issued approximately 17% of all mortgages in the U.S. market. Some bank holding companies that were greatly affected were Washington Mutual and Wachovia. Those that were affected first by…show more content…
On an institution level, “some investors simply may not have the staffing to evaluate complex securitization transactions.” On “the second level of reasoning goes to agency costs stemming from a conflict between the interests of individual employees and the institutions for which they work.” (Schwarcz, 1114) Bank’s debt structures and amount of loans reported on balance sheets post crisis had changed due to short-term creditors and borrowers. Banks with more deposit inflows reduced their lending amounts on short-term debt. The failure of Lehman Brothers caused banks to reduce their lending because they were greatly affected by the credit line cuts that came with the failure. Another finding on balance sheets was that there was an increase in commercial and industrial loans. However, that was not driven by growth in loans but rather it was increased through drawdowns on existing credit lines. The cause of the decline was due to the failure of Lehman Brothers along with decisions of firms to cut back on expansion plans because of the recession. The decrease in lending wasn’t only affected by the drop in demand but also the decrease in the amount of supply available at banks. Banks that had less access to deposit inflows and a higher threat to credit line cuts took steps to reduce their lending efforts when compared to other banks. (Ivashina et al., 20) Banks saw more changes in lending amounts when tightening of credit standards came into play as well. By tightening

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