The biggest ongoing financial crisis since the Great Depression of
the 1930s has brought forth radical changes and reshaped the
banking landscape across the globe. The first casualty of the crisis was
Northern Rock, a medium-sized bank in UK. The overly leveraged nature of its
business forced it to seek coverage from the Bank of England. After a futile search to
find a buyer for Northern Rock, the British government took the onus of
managing the mortgage banker on its own shoulder. The problems that rocked
Northern Rock came as an early indication of the impending calamity that would
soon imperil other banks and financial institutions. Then, trouble brew at the
US mortgage lender, Countrywide Financial—which was later acquired by
the country's largest consumer bank, Bank of America. Rising concerns that the
investment bank Bear Stearns would crumble resulted in its fire-sale to
JP Morgan Chase. A crisis of mammoth proportions has engulfed many
others. In between September and October 2008, the gravest crisis was the
Chapter 11 bankruptcy filing by the prestigious investment bank, Lehman
Brothers. The firm filed for bankruptcy protection on September 15,
following strings of trouble, including mass exodus of most of its employees and
clients, severe drubbing of its stock and devaluation of its assets by the rating
agencies. Subsequently, in UK, many banks such as RBS, Lloyds, HBOS,
and Bradford & Bringley were bailed out, taken over or nationalized.
All these instances underscore how pervasive has been the impact of
financial crisis on global banking. Nevertheless, interestingly, it has brought
about a tectonic change in the fundamentals of global banking. Given that
governments are using domestic taxpayers' money to bail out banks and are
therefore accountable to the domestic population, an element of protectionism
has come into the operations of global banks. Some experts are also
viewing these developments as a possible threat to financial globalization.
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