Banking crisis
A banking crisis is a specific corporate crisis in which the stability and functionality of one or more credit institutions are endangered by losses to such an extent that insolvency can be expected. Here are contagion effects on the entire national banking system , the financial markets , the overall economy or to other countries possible. A banking crisis can affect a single institution in isolation or, as a systemic crisis, an entire banking sector and can undermine the economic, social or political stability of a country.
history
Banking crises were mostly part of a national or international economic or financial crisis ; they triggered it or were their consequence. A study has shown that the most important banking crises in US history could have been foreseen with a simple economic model.
Banking crises are as old as the banks themselves and by no means a new phenomenon. One of the first banking crises evidently took place in Athens in 371 BC when the battle of Leuktra was lost to the Boötier . In panic, many Athenians withdrew their deposits from money changers in Piraeus, who thereby became illiquid.
More precisely known today in economic history is the Bernese banking crisis of 1720, triggered by speculative bubbles in London ( South Sea bubble ) and Paris ( Mississippi bubble ) . Between November 1720 and June 1721, the Bernese banks Malacrida & Cie. together with the bank Samuel Müller & Cie. Insolvent and had to be liquidated. Only banking crises followed that were part of a national or even international economic crisis such as the economic crisis of May 1837 or the economic crisis of August 1857 . The panic at Seamen's Savings' Bank on New York City's Wall Street on October 31, 1857 revealed that the stability of New York banks could be undermined by unforeseen circumstances which neither the Security Fund nor the Free Banking Act could prevent. The most significant banking crises in the US occurred in 1873, 1884, 1890, 1893 and 1907. Apart from the banking crisis of 1890, the others were marked by considerable liquidity bottlenecks, which led to the suspension of payments in the non-banking sector in the USA as well. The Barings Bank crisis of November 1890 was triggered by Argentine government bonds that had become worthless and that the bank had acquired and thus became illiquid. She therefore had to be saved by the Bank of England . The effects on the world economy were still felt for a decade.
The world economic crisis of October 1929 was of decisive importance and as a result the German banking crisis of June 1931. The second largest German bank at the time, the Darmstädter und Nationalbank , had to accept high credit losses after the bankruptcy of its borrower Nordwolle and closed its counters on July 13, 1931 . In the 1933 banking inquiry, Otto Christian Fischer first suggested making the reasonable amount of individual loans dependent on the bank's equity. His proposal resulted in a large loan regulation of the Banking Act of December 5, 1934.
Further banking crises were the savings and loan crisis in the USA from March 1985, the Swedish banking crisis of 1990, in which many banks could only survive with government support. More recent national crises have also been accompanied by banking crises, such as the Asian crisis from March 1997. As a result, from May 1998 the Russian crisis occurred ; the Argentina crisis began in January 1999. The global financial crisis from August 2007 was the origin of the bankruptcy of the Lehman Brothers bank in September 2008. The consequences of this bankruptcy were not limited to the USA, but expanded into a global financial crisis that at times almost brought interbank trade worldwide to a standstill. The PIIGS crisis occurred in the euro zone from April 2010 , of which the Greek crisis turned out to be the most profound. The PIIGS crisis was mainly responsible for the euro crisis , which was accompanied by numerous bank bailouts.
causes
Banking crises can impair the stability of one or more credit institutions and threaten their existence in the long term. The causes can be endogenous or exogenous.
- Endogenous causes : In customer business may insolvency of one or more large loan borrowers (examples: Danatbank and SMH Bank ) be triggers. In proprietary trading , the bank is subject to a market risk that can threaten its existence through incorrect speculation ( e.g. Herstatt Bank ).
- Exogenous causes : Within the banking sector, exogenous causes include contagion from other vulnerable banks, dwindling trust in the banking system, unstable interbank markets, stock market crashes or the withdrawal of foreign balances (example: banking crisis in Germany in 1931). Outside the banking sector, exogenous causes come from the national economy or the international world economy, such as economic crises, which affect one or more credit institutions.
The stability and thus the functioning of a bank 's risk when substantial loan losses , or losses (including in proprietary trading securities , foreign exchange , precious metals , varieties , in credit trading or derivatives has) to be absorbed. The high losses lead to a reduction in the bank's equity and thus its solvency , resulting in a liquidity crisis . A critical decrease in solvency and liquidity are therefore the main causes of banking crises. If these actions publicly, confidence is so severely compromised particular customers of the bank that a bank run is that the liquidity crisis through withdrawal of visibility , scheduling and savings deposits exacerbated. This scenario can be seen in most past banking crises. Balance of payments and banking crises often occur in parallel and are accompanied by a number of similar factors.
Loss of solvency
Banking crises are mainly due to the drastic decrease in the quality of the asset positions ( assets ) of a bank or the entire banking system, which is a loss-making vote has caused these assets result. The loans granted by the credit institutions are usually associated with an acceptable credit risk . This credit risk is determined in advance as part of the credit check . If, for example, economic crises lead to the simultaneous default of an unexpected number of debtors (see also cluster risk ), and / or any loan collateral turns out to be inadequate (e.g. due to overvaluation or decline in the value of a property), the bad loans must be written off at the expense of the earnings situation . If this results in losses, these lead to a reduction in the liable equity capital that threatens the existence of the company . This scenario is the flowchart of a banking crisis as it began in the USA in 2007 .
Banks also assume extensive market risks in proprietary trading, above all exchange rate risks , interest rate risks and currency risks . The unexpected occurrence of a certain event (such as the drop in the rate of a foreign currency ) is then sufficient to trigger exchange rate losses that threaten the very existence of a large number of financial institutions. The insolvency of the Herstatt Bank in June 1974 did not spread to other credit institutions; these too had to struggle with the same cause, but were able to cope with the crisis. This did not escalate into a banking crisis, and confidence in the banking system was not damaged.
Loss of liquidity
There is also a threat to the existence of banks if there is insufficient liquidity . The background to this is the permitted maturity transformation , i.e. the banks' practice of refinancing long-term loans (e.g. building loans ) in part with short-term deposits (e.g. sight deposits). If many investors withdraw their money from a bank within a short period of time, then the bank can no longer meet its obligations because it has lent the money on a long-term basis. Because bank customers find it difficult to assess the solvency of a bank, fear of a banking crisis can lead to customers withdrawing massive amounts of money (bank rush). In this situation, even healthy banks can default. Measures to avert insolvency (e.g. emergency sale of financial investments, borrowing on unfavorable terms) can in turn lead to a loss of solvency.
Chain reaction
The collapse of a bank or a severe bank crisis can set off a chain reaction. One reason is the close interlinking of the banks with one another through interbank loans (financial transactions within the banking industry), which can reach up to 30% of the total assets of a universal bank. In addition, credit institutions worldwide tend to have similar portfolio structures for their risk-weighted assets (i.e. above all loans and securities investments), so that if a certain event occurs (e.g. real estate crisis , stock market crash , changes in interest rates or interest structure ), a large number of banks are affected at the same time due to the high correlation can be. If, as a result of these problems, investors lose confidence in the banks in general, this can lead to a general liquidity crisis.
consequences
The strong dependence of modern economies on the banking system is related to the fact that the entire monetary area (in particular national and international payment transactions , lending , investments , stock exchanges ) is handled by banks and credit institutions therefore have a high systemic importance in the economy that should not be underestimated. If the functionality of the banking system is restricted, there are direct consequences for the economy.
Individual economic impact
The banking crisis, which is locally limited to a single bank, can quickly have regional effects on other banks, the stock exchanges and non-banks if the state (represented by the banking supervisory authority ) does not intervene. This contagion effect is particularly serious today due to networking , but it was also present in 1931. The difficulties that arose at the Österreichische Creditanstalt in May 1931 caused the mistrust to spread to Germany as well, reinforced by the news of a budget deficit in the Reich budget , new losses in the insurance sector and the Karstadt group. As a result, extensive withdrawals of foreign balances at banks began in Germany, from which the Darmstädter and Nationalbank was particularly hard hit and at the same time faced a loan default by their large loan customer Nordwolle.
Economic impact
While the corporate crisis of a non-bank often only has limited consequences (e.g. for its suppliers, customers and employees), the crisis of a single bank can affect all credit institutions and ultimately the real economy , i.e. H. affect the entire economy. Banks, companies and investors are closely intertwined. Advised the banks in a crisis, they will restrict lending, leading to a credit crunch (Engl. Credit crunch ) in the real economy. This in turn causes a recession , the typical consequences of which (falling solvency of companies and private borrowers, relative fall in the price of property, plant and equipment) exacerbate the banking crisis. A well-known example of such processes is the Great Depression from 1929.
Countermeasures
Prevention of banking crises
- Regulation of the financial markets:
National governments, but also international organizations (e.g. the Basel Committee on Banking Regulation ) can issue specific laws and ordinances within the framework of banking regulation that restrict the entrepreneurial freedom of action of credit institutions by limiting credit, interest, currency or market price risks. At the same time, the state sets up specific authorities that are entrusted with the supervision of the banks with the help of the enacted laws. The international and national financial markets are the most largely regulated markets of all. In Germany, the German Banking Act (KWG) and the Solvency Ordinance (SolvV) regulate the amount of minimum equity, the KWG and GroMiKV allocate large loans and corporate loans as well as cluster risks , and the minimum requirements for risk management (MaRisk) force banks to strengthen their risk management .
- Monitoring the credit institutions:
Due to this legal framework, credit institutions and other financial institutions are more or less closely monitored by the respective state (see banking supervision and bank failure ). Bank supervision is usually carried out by state authorities, which regularly monitor compliance with bank-specific laws by the credit system. The German credit institutions are also subject to extensive, regular notification and reporting obligations. Monitoring takes place in Germany through coordinated cooperation between the Bundesbank and BaFin .
- Deposit insurance systems:
In the event of a bank collapse, investors are individually protected through various forms of deposit protection. This means that there is no incentive for investors to withdraw their investments due to a decline in confidence in the bank.
- Stress tests:
Internationally and nationally, the banks take part in regular stress tests that are designed to simulate certain crisis scenarios . The effects of the specified crisis parameters (e.g. rising / falling interest rates , bullish / bear market shares , changes in raw material prices , changes in exchange rates or a general recession ) on an individual credit institution are observed and taken into account in its - fictitious - annual financial statements .
Actions in a Banking Crisis
If a banking crisis breaks out or threatens to break out, the central bank can decide to cut key interest rates. Nowadays, the central banks also have the task of providing the banks with additional liquidity as lenders of last resort in economic crisis situations in order to ward off credit shortages and a loss of confidence in the banking system. In many countries, banking supervision is legally authorized to close individual banks or intervene in their business policy.
Not all banking crises sparked a major economic crisis. So it succeeded z. B. the USA to master the consequences of the savings and loan crisis in 1985 without a recession .
Measures in the banking crisis since 2007
The catalog of measures described is not sufficient for the global financial crisis from 2007 triggered by the subprime crisis in the USA . Many states have adopted specific rescue packages for the financial sector (with the consequence of the partial socialization of banking risks and losses). In Germany, the Financial Market Stabilization Fund (SoFFin) was founded in October 2008, offering state guarantees (in the event of liquidity bottlenecks), equity capital strengthening or risk assumptions up to an amount of EUR 470 billion. This also includes the establishment of bad banks , i.e. special-purpose vehicles into which high-risk (so-called “toxic”) loans / securities are brought in. Through deconsolidation (ie a balance sheet policy that seeks to isolate the “bad bank” from the consolidated financial statements of the bank shortening the balance sheet), the high risk can also be separated from the balance sheet, so that a “healthy” bank remains.
Situation in the USA
The banking sector in the US is organized and regulated differently than in Europe.
The banking supervision in the USA is a historically grown and chaotic construct. There are (as of 2012) numerous competing supervisory authorities, some of which have overlapping responsibilities. Banks and insurers can play off the authorities of different states against each other and settle where they have the least restrictions. At the federal level, at least nine overseers compete with one another.
Universal banks dominate in Europe ; in the USA specialty and investment banks . Their naturally higher corporate risk - due to a lack of adequate risk diversification - can only be "balanced out" with other business sectors with difficulty, so that the risk of insolvency tends to be higher. This and the greater willingness to take risks in North America are in particular the causes of the financial crisis that started here from 2007 and the US banking crisis that culminated in the bankruptcy of Lehman Brothers in September 2008. This banking crisis must also be seen against the background of the Basel II regulations, which was introduced in Europe (in Germany, among other things, by the aforementioned SolvV). The USA has delayed the introduction of Basel II until today with reference to “complicated regulations” . The highly complex set of rules could not prevent the US banking crisis from spreading to Europe.
In December 2009, the US banking regulator closed seven other US financial institutions because of over-indebtedness; including this, the number of bank failures at that time was 140.
Broadcast reports
- Vivien Leue : The beginning of the financial crisis ten years ago - a bank failure with worldwide effects , Deutschlandfunk - background from September 16, 2018.
literature
- Stephen G. Cecchetti: Money, banking, and financial markets. 2nd edition. McGraw-Hill Irwin, Boston 2008, ISBN 978-0-07-128772-2 . Chapter 14.
- Frederic S. Mishkin: The economics of money, banking, and financial markets. 7th edition. Pearson Addison Wesley, Boston 2004, ISBN 0-321-20463-8 . Chapter 11.
- Susanne Schmidt : Market without morals. The failure of the international financial elite. Droemer Knaur, Munich 2010, ISBN 978-3-426-27541-2 .
Web links
Individual evidence
- ^ Gary Gorton: Banking Panics and Business Cycles. In: Oxford Economic Papers vol. 40 No. 4, December 1988, pp. 751-781
- ↑ Heinz-Dieter Haustein, Zeitwechsel: The halting rise of money capital in history , 2012, p. 8
- ↑ Steven H. Jaffe, Jessica Lautin, Museum of the City of New York (ed.): Capital of Capital: Money, Banking, and Power in New York City 1784-2012. 2014, p. 62
- ↑ Eberhart Ketzel, Hartmut Schmidt, Stefan Prigge: Wolfgang Stützel - modern concepts for financial markets, employment and economic constitution. 2001, p. 96
- ↑ Michael Krause: How Nikola Tesla invented the 20th century. 2010, p. 151
- ^ Joachim von Köppen: The equity capital of the credit institutions. 1966, p. 203
- ↑ Joachim K. Bonn: Banking crises and banking regulation . Springer-Verlag, 2013, ISBN 3-322-86638-6 , pp. 58 ( limited preview in Google Book search).
- ^ Ingo Köhler: The "Aryanization" of the private banks in the Third Reich. 2008, p. 47
- ↑ Jay C. Shambaugh: The Euro's Three Crises. In: David H. Romer, Justin Wolfers: Brookings Papers on Economic Activity. Spring 2012, p. 163
- ^ German Institute for Economic Research (Ed.): Weekly report. Volume 64, 1997, p. 983.
- ↑ Jay C. Shambaugh: The Euro's Three Crises. In: David H. Romer, Justin Wolfers: Brookings Papers on Economic Activity. Spring 2012, p. 163.
- ↑ Deutsche Bundesbank (Ed.): Banking Statistics December 2008. P. 9.
- ↑ Gabler Bank-Lexikon , 10th ed. 1983, col. 275.
- ↑ Expert council to assess macroeconomic development: Peter Bofinger et al .: After the EU summit: Use time for long-term solutions. (PDF; 734 kB), July 5, 2012, p. 1; Jay C. Shambaugh: The Euro's Three Crises. In: David H. Romer, Justin Wolfers: Brookings Papers on Economic Activity. Spring 2012, p. 159.
- ↑ Manfred Borchert: Money and Credit: Introduction to Monetary Theory and Monetary Policy. Verlag Oldenbourg, Vienna 2001, p. 275 f.
- ↑ SoFFin homepage
- ↑ The assumption of risk is understood to mean the transfer of risk positions (e.g. loans and securities) from the credit institutions to the funds for which the banks receive federal debt. The Fund may hold these risk positions until they mature.
- ↑ Europe must learn from America's mistakes. handelsblatt.com, July 9, 2012.
- ↑ Seven other US banks closed. tagesschau.de Status: December 19, 2009. 07:36 am.