The period between the financial crisis at the beginning of the 21st century and the global financial crisis in 2008 was a boom phase. During such the GDP in the European Union doubled, the housing market saw a steep increase in demand and pricing which was supported by a significant increase in private debts. Especially during this period banks used the principle of securitization to pool illiquid loans and make them tradeable in forms of Asset-Backed Mortgages. Such normally were handled by Special Purpose Vehicles, a special business entity created only to handle specific assets and therefore remove such from the banks own balance sheet. The securitization market as well saw an extreme increase in traded volume. Important to note is here that such products were mostly used by banks as collateral in the interbanking market. With increasing interest rates in the United States and EU, a high number of loans with variable interest rates and therefore increasing fault rates the ABS became more and more of a risk whilst the housing market cooled down. The financial crisis swept from the USA to EU because ABS are traded globally. As the trust in the ABS used as collateral was lost due to the issue evaluating the quality of the ABS correctly the interbanking market came do a sudden stop and the market became illiquid. The support of the ECB and the national institutions was necessary to provide sufficient liquidity to the financial sector to avoid a collapse of the whole system. Nevertheless, the consequences of the financial crisis in the EU were that sovereign debts increased significantly leading further into the European debt crisis. Besides rules and regulations were tightened to avoid such crisis in the future and additional costs to the taxpayers.
Table of Contents
1 Introduction
1.1 Problem and Objective
2 The situation prior to the financial crisis in Europe
2.1 Regulating Framework
2.2 Economic situation for selected EU countries and United States
2.3 Interbanking market and Asset-Backed securities
3 The financial crisis hitting the European Union
3.1 Economic consequences
3.2 Social and political Consequences
4 Conclusion and outlook
Research Objectives and Key Themes
This paper aims to analyze the origins, impacts, and consequences of the 2008 global financial crisis on the European banking sector, specifically examining the transition of the crisis from the U.S. to the European Union and the subsequent economic and political effects.
- Regulatory frameworks and the role of Basel agreements
- Economic conditions in the EU and U.S. prior to the crisis
- The mechanics and risks of the interbanking market and securities
- Structural changes in the European banking sector
- Policy responses and long-term consequences, including rising sovereign debt
Excerpt from the Book
1.1 Problem and Objective
The aim of this paper is to describe and explain the essence of the financial crisis in the European Union. This assignment firstly focuses on to describe the situation prior to the GFC 2008 on the basis of selected core elements related to economy and the financial sector presenting the development of an uncertain financial position. Next it is explained how it was possible under these circumstances that the national crisis within the USA took over on the EU. In the following the impacts on the European financial sector, their costs and consequences and changes are presented and discussed. The assignment shall be concluded with an outlook.
Summary of Chapters
1 Introduction: Provides an overview of the global financial crisis of 2008 and defines the objective of examining its specific impact on the European financial and banking sectors.
2 The situation prior to the financial crisis in Europe: Analyzes the regulatory environment, economic developments, and the state of the interbanking market before the onset of the crisis.
3 The financial crisis hitting the European Union: Discusses the transmission of the crisis to Europe, focusing on the collapse of trust, liquidity shortages, and the resulting economic and sociopolitical repercussions.
4 Conclusion and outlook: Summarizes the long-term aftermath of the crisis, the subsequent European debt crisis, and current regulatory adjustments intended to stabilize the banking system.
Keywords
Global financial crisis, European banking sector, interbanking market, Asset-Backed Securities, GDP, sovereign debt, Basel III, liquidity, regulation, European Union, economic downturn, mortgage-backed securities, financial stability, credit risks, Banking Union
Frequently Asked Questions
What is the primary focus of this research?
The work provides a comprehensive analysis of the causes, costs, and consequences of the global financial crisis originating in 2008 as it pertains to the European banking sector.
What central thematic areas are covered?
The study covers pre-crisis economic conditions, the regulatory role of Basel frameworks, the functionality of the interbanking market, the mechanism of securitization, and the subsequent economic impacts on the European Union.
What is the overarching research question?
The primary research objective is to explain how a U.S.-based financial crisis impacted the European Union, leading to economic and sovereign debt crises, and how these events transformed the European financial sector.
Which scientific methodology is employed?
The paper employs analytical research, utilizing historical economic data, regulatory documentation, and institutional reporting to trace the development and consequences of the financial crisis.
What topics are addressed in the main body of the text?
The main body examines the pre-crisis regulatory landscape (Basel agreements), the economic climate in the EU and U.S., the importance of the interbanking market, the impact of Asset-Backed Securities, and the structural consequences for European economies and politics.
Which keywords best describe the paper?
Key terms include GFC, European Union, Banking sector, Securitization, Sovereign debt, Regulatory framework, Basel III, and Interbanking market.
How did Asset-Backed Securities contribute to the crisis?
ABS acted as a pool for illiquid loans that were traded to shift credit risk; however, lost trust in the underlying quality of these securities caused a sudden breakdown of the interbanking market, which led to a liquidity crisis.
What was the role of the European Central Bank during the crisis?
The ECB played a crucial role in providing necessary liquidity to the financial sector to prevent a complete system collapse, later adjusting interest rates to support economic recovery.
What political long-term changes resulted from the crisis?
The crisis contributed to the rise of populism due to public dissatisfaction with bank bailouts and led to the installment of the Banking Union to better supervise and manage failing banks in the euro area.
- Quote paper
- Malte Kanngießer (Author), 2023, The impact of the global financial crisis 2008 on the European banking sector, Munich, GRIN Verlag, https://www.grin.com/document/1508301
