Iceland 2008. From a Banking Crisis to a Sovereign Debt Crisis

Seminar paper from the year 2012 in the subject Economics - Finance, grade: 2,3, Johannes Gutenberg University Mainz, course: Seminar Financial Institutions, language: English, abstract: During the current financial crisis which started in the year 2007 with the bust of the

American housing market and peaked with the collapse of Lehman Brothers we

observe that many countries face difficulties with their domestic banking system.

For instance Germany had problems with several Landesbanken, the Hypo Real

Estate (HRE) and with Commerzbank or the United States struggled with the

collapse of Merrill Lynch and Bear Stearns leading to an enforced merger with Bank

of America and JP Morgan Chase respectively. In other countries problems in the

banking system were more dramatic. After rumors in the United Kingdom about a

collapse of Northern Rock people went immediately to the branches to withdraw

their deposits. The picture spread the world when people waited outside in a queue

of a branch of Northern Rock to get inside. To prevent a domestic bank run in the

United Kingdom the government nationalized several financial institutions such as

Royal Bank of Scotland; afterwards holding a stake of 95% in this particular

institution. Nowadays Spain faces a huge banking crisis after the bust of the Iberian

housing bubble. But what is the problem of having a banking crisis?