The global financial crisis of 2007-2008

The Global Financial Crisis and its Impact on Financial Institutions

The global financial crisis that occurred in 2008 had far-reaching consequences for various institutions. Financial institutions experienced major hurdles as a result of the 2007-2008 financial crisis (Acharya, Philippon, Richardson and Roubini, 2009). The Washington Mutual Bank was one of the financial institutions that suffered as a result of the financial crisis (Weick, 2013). The bank had enormous assets of $307 billion, yet this was insufficient to help the bank withstand the crisis. The bank’s failure was ascribed to a variety of issues (Grind, 2012).

The First Bank Run and its Impact

The first reason for the failure could be ascribed to the first bank run that it encountered. The Federal Deposit Insurance Corporation sent signals to various banks that may have had an interest in acquiring the bank. The decision to do so resulted in fear driving away bidders and the customers who had their savings in the bank because of the massive withdrawal (Ivashina and Scharfstein, 2010). The rumors that the bank may be sold played a significant role since most of the customers were in fear regarding the state of their finances.

The Role of the Federal Deposit Insurance Corporation and Bank Executives

The collapse of the bank can be blamed on two primary individuals, the Federal Deposit Insurance Corporation and the executives of Washington Mutual Bank. The decision to leak information that the bank would be sold was unnecessary since it sent a wrong message to bidders and customers hence the bank run (Claessens, Dell’Ariccia, Igan and Laeven, 2010). The executives equally failed since they did not make an adequate decision to allay the fears and reassure the customers that the issue would be resolved.

Decision-Making Theories and Lessons Learned

Decision-making theories are essential in explaining the issues. The incremental theory is one that is applicable in the situation (Mtigwe, 2006). For example, decisions made by either of the two parties needed to be factual. Policies ought to have been made to address the prevailing situation.

Conclusion

In conclusion, it is evident that significant failures were noted in terms of decision-making. Relevant parties failed to address the issues at hand by making poor decisions.

References

Acharya, V., Philippon, T., Richardson, M. and Roubini, N., 2009. The financial crisis of 2007‐2009: Causes and remedies. Financial markets, institutions & instruments, 18(2), pp.89-137.

Claessens, S., Dell’Ariccia, G., Igan, D. and Laeven, L., 2010. Cross-country experiences and policy implications from the global financial crisis. Economic Policy, 25(62), pp.267-293.

Grind, K., 2012. The lost bank: The story of Washington Mutual-the biggest bank failure in American history. Simon and Schuster.

Ivashina, V. and Scharfstein, D., 2010. Bank lending during the financial crisis of 2008. Journal of Financial economics, 97(3), pp.319-338.

Mtigwe, B., 2006. Theoretical milestones in international business: The journey to international entrepreneurship theory. Journal of international entrepreneurship, 4(1), pp.5-25.

Weick, K. (2013). The Lost Bank: The Story of Washington Mutual, the Biggest Bank Failure in American History. Academy of Management Review, 38(2), 318–324. http://doi.org/10.5465/amr.2012.0313