Malte Vieth

From Basel II to Basel III. Would Investment Banking be preferred under Basel II? Malte Vieth

Master's Thesis from the year 2013 in the subject Economics - Finance, grade: 1,7, Johannes Gutenberg University Mainz, language: English, abstract: In the year 2007 the first bad signs appeared which predicted that something is happening in global financial markets. An asset-bubble in the US housing market started to bust and that event had generated fatal consequences not only for the US, but also for the rest of the world. Several major peaks characterize the recent financial crisis, also named subprime crisis, such as the country default of Iceland (though subprime crisis was not the main cause) or the nationalization of the mortgage corporations Freddie Mac and Fannie Mae by the US government. Certainly, no one forgets the queues of people waiting outside the branches of the British bank Northern Rock to withdraw their savings from the bank as a result of rumors about liquidity problems of this institution. Some of the biggest Investment Banks in the world experienced serious difficulties with reference to their liquidity situation and were acquired by other banks. JPMorgan Chase bought the traditional US Investment Bank Bear Stearns and Bank of America merged with the US Investment Bank Merrill Lynch. Clearly, one of the most important events in the course of the subprime crisis was the collapse of the US Investment Bank Lehman Brothers which happened on 15th September 2008. Especially Investment Banks were hit hard by the subprime crisis and also the Investment Banking divisions of universal banks caused many issues for the whole institution. One of the main causes of the subprime crisis was identified: the Investment Banking business. The regulatory framework with reference to the banking supervisory failed in times of financial turmoil and needed to be reformed. In particular, the capital situation and liquidity profile of many banks were not adequate compared to the risks these banks were exposed to. Risks resulting from positions in the trading book (mark