Banking crisis

As a banking crisis, a state is referred to, in the confidence in the banking system is so severely damaged by financial problems of one or more credit institutions that threatens a contagion effect. This contagion effect, other credit institutions and their creditors, possibly the financial markets and in consequence the whole economy can be harmed.

• 3.1 Prevention of banking crises
• 3.2 Measures in a banking crisis
• 3.3 Measures in the banking crisis since 2007

Causes and consequences

The cause of the crisis of individual banks can be a critical decrease in solvency, or a critical decrease in liquidity. The crisis of individual banks can lead to a loss of confidence in the entire banking system.

Loss of solvency

Banking crises are caused mainly by the drastic decrease in the quality of the asset positions (assets) of a bank or the banking system, which has a lower valuation of assets is the result. Cause of the quality and evaluation decay can be, for example:

The scores awarded by banks loans are associated with a certain, reasonable credit risk. The determination of this credit risk shall be done under the credit check in advance. Then comes it about by economic crises to simultaneous failure unexpectedly many borrowers ( see also concentration risk ), and any loan collaterals are to be insufficient (such as overvaluation or decline in value of a property ), the bad loans are written off at the expense of profitability. Caused by such losses, they lead to a reduction would threaten the existence of the liable capital. This scenario is a flow diagram of a banking crisis, as it began in the U.S. in 2007.

Banks also take extensive market risks, mainly exchange risks, interest rate risks and currency risks. It then satisfies the unexpected occurrence of certain events (such as the price drop a foreign currency) to trigger life-threatening losses in a variety of financial institutions. This scenario was the cause of the bankruptcy of the Herstatt Bank in 1974 Other credit institutions had to contend with the same cause, but were able to overcome the crisis. ; into a banking crisis escalated not, and confidence in the banking system was not damaged.

Loss of liquidity

An existence risk for banks is also insufficient liquidity. The background is the maturity transformation, ie the allowed practice of banks and long-term loans (eg home loan ), some with short-term deposits (eg demand deposits ) to refinance. If many investors to withdraw their money at a bank in a short time, then the bank can not meet its obligations because it has lent the money in the long term. Because the bank customers can assess the solvency of a bank is difficult, the fear of a banking crisis can lead to customers en masse to withdraw money bank run. In this situation, can fall into insolvency even healthy banks. Action taken to eliminate the failure ( eg forced sale of investments, borrowing on unfavorable terms ) may give rise to a loss of solvency.

Chain reaction

The collapse of a bank or a serious crisis of a bank can trigger a chain reaction. One reason is the close integration of credit institutions with each other through interbank loans (ie monetary transactions within the banking industry ) that reach up to 30 % of the total assets of a universal bank. In addition, most credit institutions ( ie primarily loans) tend to have similar portfolio structures in its risk -weighted assets, so that when the occurrence of certain events (such as real estate crisis, stock market crash ), a large number of banks can be affected at the same time because of the high correlation. Losing due to these problems, the investor confidence in the banks generally, it may be a general liquidity crisis.

Economic impact

While the crisis in the company of a non-banking often limited impact (about their suppliers, customers and employees) pulls up to the crisis at an individual bank can take all credit institutions and finally to the real economy, ie the whole economy impact. Banks, companies and investors are closely intertwined. Advised the banks in a crisis, they will restrict lending, this leads to a credit crunch (English " credit crunch ") in the real economy. This in turn caused a recession, the typical consequences (declining solvency of companies and private borrowers, relative price decline in fixed assets) exacerbated the banking crisis.

A well-known example of such processes is the global economic crisis in 1929 that triggered again in Germany the collapse of DANAT bank and thus the German banking crisis. Also since 2007 - and caused by the United States, starting by overly liberal lending during the subprime crisis - escalating crisis in the world economy due to these chain reactions.

Countermeasures

Prevention of banking crises

• Regulation of financial markets:

National governments, international organizations (eg the " Basel Committee on Banking Regulation " ) may adopt in the context of banking regulation specific laws and regulations that restrict the entrepreneurial freedom of action of credit institutions by limiting the credit, interest rate, currency or market risks. Simultaneously, the State shall establish a specific authorities who are entrusted with the supervision of banks by means of laws enacted. The international and domestic financial markets are largely regulated markets of all. In Germany, the German Banking Act ( KWG) and the Solvency Regulation ( Solvency ) regulate the amount of the minimum capital, the Banking Act and GroMiKV quotas on wholesale and loans as well as risk concentrations, and the Minimum Requirements for Risk Management ( MaRisk) force the banks to strengthen their risk management.

• Supervision of credit institutions:

Because of this legal framework of credit institutions and other financial institutions from each country more or less closely monitored (see banking supervision and bank failure ). Banking supervision is usually perceived by public authorities, which monitors compliance with the bank-specific laws by the credit system regularly. The German banks are further extensive regular notification and reporting obligations imposed. The monitoring is done in Germany by coordinated cooperation of the Bundesbank and BaFin.

• DGS:

Investors through various forms of deposit insurance are individually fused the event of a bank failure. Thus, the incentive for investors to deduct the investments due to a loss of confidence in the bank is not required.

Measures in a banking crisis

Nevertheless, when a banking crisis breaks out or break threatens the central bank may decide to lower interest rates. Today, the central banks have also the task as a lender of last resort in times of economic crisis the banks additional liquidity to stave off a credit crunch and a loss of confidence in the banking system. Banking supervision is authorized by law in many states, to close or interfere in their business policy, individual banks.

Not all banking crises sparked off a huge economic crisis. Thus, for example, succeeded the United States to deal with the consequences of the Savings -and -loan crisis in 1985, without leading to a recession.

Measures in the banking crisis since 2007

For triggered by the subprime crisis in the U.S. global financial crisis starting in 2007 the catalog of measures described is not sufficient. Many states have for the financial sector -specific bailouts decided (with the consequence of the partial socialization of the banking risks and losses ). In Germany, therefore, the Special Fund for Financial Market Stabilization ( SoFFin) was founded in October 2008, offering state guarantees (with liquidity constraints ), equity buffs or assumption of risk up to the amount of EUR 470 billion. This includes the creation of " bad banks ", ie special purpose entities, in the high-risk (so-called " toxic " ) loans / securities are introduced. By deconsolidation (ie an accounting policy that seeks to isolate the "bad bank " from the consolidated financial statements of balance shortening bank), the separation of the high risk also be performed from an accounting perspective, so that a "healthy" bank remains.

Past banking crises

• Bernese banking crisis of 1720
• Economic crisis of 1857
• Great Depression of 1929
• German banking crisis in 1931
• Savings -and -loan crisis in the U.S. around 1985
• Swedish banking crisis 1990-1992
• Collapse of the British Barings Bank in 1995
• Financial crisis from 2007

Situation in the U.S.

In the U.S., the banking sector is differently organized and regulated than in Europe.

Banking supervision in the United States is a historically developed chaotic construct. There are (as of 2012) numerous competing regulators with partly overlapping responsibilities. Banks and insurers can the authorities of different states off against each other and settle where they have the least restrictions. At the federal level to compete at least nine overseers together. In Europe, universal banks dominate; in the U.S. specialty and investment banks. Your nature - in the absence of adequate risk diversification - higher business risk can be difficult to "balanced" with other business sectors, so that the risk of bankruptcy tends to be higher. This and the higher risk-taking in North America in particular, the causes of the outgoing, from here the financial crisis starting in 2007 and culminating in the bankruptcy of Lehman Brothers in September U.S. banking crisis of 2008. These banking crisis must be seen against the background of the rules of Basel II, the was introduced in Europe ( in Germany, among others by the mentioned Solvency Regulation ). The U.S. has delayed the introduction of Basel with reference to " complex regulations " II until today. However, the highly complex rules could not prevent a spillover of the U.S. banking crisis in Europe.

In December 2009, the U.S. banking supervision completed seven other U.S. financial institutions because of insolvency; including these, the number of bank failures amounted at that time to 140