Too Big to Fail

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

The largest banking institution in the United States, Bank of America, has been characterized with numerous controversies in the recent past. While the institution only got bigger since the financial crisis and government intervention through bailouts, Bank of America headed towards collapse. In 2011, Bank of America experienced several protests of its branches by various groups like National People's Action, US Uncut and other progressive activists (Jaffe par, 1). These protests were fueled by the groups' anger at Bank of America's tax dodging, huge bonuses that were paid after government bailouts, foreclosures, and other harmful practices. These protests contributed to increased concerns on whether the too-big-to-fail behemoth would really collapse.

The Stock Market Crash played a major role in bank failures. After the crash, people were indifferent about the stability of banks, so they all began taking out their savings. Banks no longer had the currency to stay open. For those who did not take this

A Colossal Failure of Common Sense was one of many books to be published in the aftermath of the Financial Crisis of 2007. After seeing the global economy stall in the face of massive losses in word financial markets, many Americans sought to better understand the crisis and its causes. This book, written from the perspective of a financial market insider, provides a glimpse into the world of global finance and also seeks to explain how the players in this world were involved in the crisis. In the words of the author Lawrence McDonald, “My objective in writing A Colossal Failure of Common Sense was twofold. First, to provide … a close-up, inside view of how markets really work…..And, second, to give… as crystal clear an explanation as possible about the real reasons why the legendary Lehman Brothers met with such a swift end”1. By writing about his personal experience at Lehman Brothers and recounting stories from within the famous investment banking firm, Mr. McDonald largely succeeds at his first goal. However, the elements of personal biography and the chronological order of the book make it difficult for the reader to fully appreciate all of the varied causes of the financial crash. I believe that the main value of reading this book is in understanding these causes, with Lehman Brothers acting as a microcosm of the greater financial universe. As such, in this review I have isolated elements from Mr. McDonald’s book which highlight how the crisis

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

When a bank fails their chartering officials, either state regulators or the Office of Comptroller Currency often close and shut down the institution in order for the FDIC to come in and resolve the problems that have arose. The FDIC has many options that can resolve institution failures, but the most prominent one that is used is to sell off any of the failed institution’s deposits or loans to another institution. This is generally a very fast process, usually happens overnight in the event of an institution failure. The customers of the old bank automatically become customers of the new institution that has agreed to purchase the remaining assests of the old

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

“Too Big to fail” was first known in a 1984 Congressional hearing where Congressman Stewart McKinney discussed the Federal Deposit Insurance Corporation’s intervention with Continental IIIinois. The idea interprates that certain financial institutions are so large, if any of them fails, it will bring an unexpected disastrous effect to the economy. As we all known, the 2008 financial crisis had arose the “too big to fail” problem to the peak controversial point. Banks, insurance companies, auto companies are part of the big company industry. They make profit by creating and selling complicated derivatives and trading loans, commodities and stocks. When the big economic environment is prosperous, those big companies make a competitive

The power to shape the economy is concentrated in just a few people at the top of the biggest banks, and they care little about consumers who don’t own businesses or earn the highest incomes. Banks often have more spending power than the government, and their mistakes can generate massive economic downturns such as the mortgage crisis of

In the film, “Too Big to Fail,” we see the internal workings and negotiations of the 2008 financial crisis, beginning with the collapse of Lehman Brothers Holdings, Inc. due to plummeting stocks and large debt ratios. Following the CEOs of other private and commercial banks along with the U.S. Federal Reserve and Secretary of Treasury, it becomes apparent that large banking/investment institutions can in fact bring an economy into a recession and if not dealt with successfully, a depression. As this financial crisis became an unavoidable fate, we are able to see the plethora of issues that these types of large financial firms get themselves into when allowed to expand to such great sizes.

During the recent financial crisis, in the autumn of 2008, the Lehman Brothers bank collapsed. It was the biggest bankruptcy in history

On September 10, 2008, Lehman Brothers announced the lowest decline as the shares dropped to 45%. It left the market value at $5.4 billion after the Korea Development Bank rejected to make an investment deal that could rescue Lehman. The company would seek capital from other investors in order to recover their financial situation. These efforts faltered and the situation grew more severe, even after the US government had already saved the Bear Stearns and Fannie Mae and Freddie Mac. Though it is less likely that the US government will keep Lehman's bailout, there should be a resolution from the Federal Reserve System to bolster Lehman’s finance so as to prevent the US economic declination.

Increasing global connectivity and integration in today’s world ensures that almost any serious problem has worldwide ramifications. The global financial system can serve as a key example of this phenomenon. Very recently, Britain’s fifth-largest mortgage lender Northern Rock was rescued by emergency funding from the Bank of England. This made the Newcastle-based firm the highest profile UK victim of the global credit crunch that had been triggered by the sub-prime mortgage crisis in the US. The bank run on Northern Rock that followed was unprecedented in recent UK monetary history. The Overend Guerney crash of 1866 was the last recorded bank run

“To big to fail” firms or Systemically important financial institutions (SIFIs) are those who pose a possible risk to the overall U.S. economy. The firms and banks who are designated with this title are subject to additional regulatory burdens that National Economic Council Director Gary Cohn explains, “… are bad for business and slow

This was demonstrated during the latest financial crisis, when banks faced the threat of a bank run, not only by depositors, but also by institutional investors. In fact, following the 2007–2008 crisis, the interbank market almost dried up, suggesting that bank runs may move from the retail to the wholesale market. To prevent bank runs and their effects, governments usually create implicit or explicit guarantees to protect depositors (for a concise review see Allen et al., 2009). Deposit insurance schemes however might produce unwanted effects and increase moral hazard because they can induce banks to take higher risks.1 Prudential authorities enforce capital regulation2 in order to limit bank