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Spain Sub Prime Crisis Essay

7844 words - 32 pages

Name of the University

Master Thesis

Banking system reforms after the subprime crises
Study case: Spain

Author: | Supervisor: |
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Department of ……………………………

January 2014

Abstract

How did the Subprime Crisis, a small problem of U.S. financial markets, affect the entire global banking system?
The aim of this paper is to analyze the effect of the subprime crisis on the banking sector in Europe, with a close attention on the case of Spain. Spain is currently facing the worst crisis ever experienced in its financial history, so it would be interesting to analyze what is the real situation of the banking sector and what will be the reforms that could lead to a ...view middle of the document...

In 2008, the bankruptcy of Lehman Brothers was a clear evidence of the subprime crisis, which had origin much earlier. At this time people couldn’t image the impact the crisis would have in the financial sector. Almost five years later the World is still affected by this financial crisis and everyone is wondering when the economy will recover. The subprime crisis initiated in the US has affected in particular those countries where the previous housing boom was most pronounced, Spain being among them. In these countries the housing bubble was completed by a series of common traits: a credit growing market, a current account deficit and a reduction in the saving rate The Spanish case is interesting because we can observe the existence of a dynamic provisioning system and a model of securitization in which originators retained the exposure and where obliged to put aside capital requirements.Heavily affected by the real estate sector crisis, banks need to regain market confidence. Spain economy relying in the real estate sector had been heavily affected by the subprime crisis until a point that markets were wondering if Spain was able to recover and pay back its debts. Analyzing the effects of the subprime crisis in Europe and comparing the situation of Europe and Spain will highlights Spain specific features and will make us able to understand which actions are required by the government and institutions to recover from the crisis.Euro Zone entities intervened directly into the banking system thru the Basel program. The regulatory failures will be identify and will project the future results of the Basel III implementation into the Spanish economy. Introducing the Subprime Crisis The 2007-2009 global financial crises reminded everyone about the multifaceted nature of crisis. Not taking in consideration if is about a small or a large country, a poor or a rich one. They can have different origins, domestic or external, affecting private or public sectors. They have different shapes and sizes, taking different forms during time, and usually spread across borders. Financial crises are often the product of asset and credit booms that eventually turn into busts. This booms can be identify in time but no one still has an answer of why they are allowed to continue, knowing that can rapidly become unsustainable and turn into busts or crunches. The subprime crisis: origins and evolutionThe subprime crisis is an over studied topic studied by a vast number of thinkers trying to establish the cause and to find the culpable for the greatest economic collapse since great depression. Trying to point out a single cause as the root of the crisis is however impossible as our current situation is the results of a set of political, economic and social policies. A lot of literature is dedicated to the subprime crises subject, all finding guilt in the management and moral hazard existent in the American economy. It all started on the American continent and soon...

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