The paper "How the Global Financial Crisis Impacted on the Banking Industry" is a perfect example of a finance and accounting assignment. The global financial crisis (GFC) had different impacts on the banking industry in different countries. In general, many banks went bankrupt while others were in distress because of their sensitivities in terms of their balance sheets, to the financial risks that were increased by the crisis (Eken et al. 2012, p. 269). However, some banks felt the effects of the crisis to a less extent (Eken et al. 2012, p.
269). These details are explained below. The banking industry was severely weakened in countries such as the US, the UK, Japan and many countries in Europe as a result of the GFC. For instance, in the US, the number of bank failures increased and the value of bank stocks declined significantly (Kwan 2010, p. 1). This was initiated by the bankruptcy of Lehman Brothers, an investment bank (Delia 2012, p. 1262). In response to the effects of the GFC and the dire conditions that the banking industry was facing, banks tightened their terms and requirements of lending to very high levels (Kwan 2010, p.
1). The exceptionally high lending requirements meant that many borrowers could not access bank loans, leading to a significant decline in bank lending (Moseley 2009). This, in turn, resulted in reduced profitability for banks since the banks could only earn interest on finances that they lent to the few borrowers who passed the stringent borrowing requirements. There were also many bank runs (a situation whereby many depositors withdraw cash from their deposit accounts due to the belief that the financial institution with which they have kept their money will collapse).
This led to a banking panic because many banks were suffering runs at the same time, as people tried to change their deposits into cash or resorted to getting out of the banking system completely (Ciro 2016, p. 20). The situation led to massive banks collapses or left many institutions in the banking sector in various countries, especially those that were connected to international financial markets, requiring bailouts (Ciro 2016, pp. 20-21; Delia 2012, p.
1262). Such institutions include the UK’ s Lloyds Banking Group, which required a bailout, as well as Allco Finance Group and Babcock & Brown – both being investment banks in Australia – which collapsed because of massive corporate debt (Ciro 2016, p. 21).
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