5 banks whose collapse may lead to next financial crisis
Banks, as we know, are the most critical elements amongst all the financial institutions. This is basically because of the credit generation role that banks play, and owing to the fact that the world is in huge need of money for every bit that any nation does, we depend on banks. Undoubtedly banks form the backbone of the economy and there is no other organization or institution that can take up the part.
But how do we judge if a bank is capable or not? Well, for this, we look at the profitability of the bank. And the profitability or liquidity is judged by the amount of assets that a bank holds. Assets play a very significant role in determining the size and power of a bank. By calculating the assets of a bank, we arrive at its net worth and this gives us an estimate of the overall ranking of the bank.
Talking of the net worth, it should be noted that the larger the bank is, the greater it impacts the world economy. And if we talk of crisis, if any of the biggest banks goes into bankruptcy, the global economy is shaken! This is solely because the greater the power, the greater is the risk! Let’s have a look at some of these biggest powers.
Industrial and Commercial Bank of China
This is a Chinese commercial bank, the largest in the world by its total assets and the third largest by its market capitalization. The bank was founded in 1984 as a local run state bank in Beijing and since then, has been expanding its operations all over the world. A very interesting fact is that it is also the world’s largest IPO, valued at US$21.9 billion!
ICBC is also one of the most trusted banks in the world and has received huge investments from many strategic investors since its inception.
This is one of the biggest reasons that if ICBC collapses, it will be a fall not just for China, but many big investors all over the world, who have deposited huge sums of their money in the institution. The bank also has 2.5 million corporate customers and about 150 million individual customers, which makes the situation even riskier.
The second on our list is HSBC Holdings, which is a British multinational company headquartered in London. Established in 1991, it is the world’s sixth largest bank by total assets and the largest in Europe. HSBC has around 4000 offices in more than 70 nations, across Asia, Africa, South America, North America and Europe, with around 40 million customers in total. The bank has four global product lines – HSBC Direct, HSBCnet, HSBC Advance, HSBC Premier. With the expanding branches of the bank, it has become one of the most popular international banks, especially in developing nations like India. Though its name has been a part of several controversies and investigations, its growth surge has not been affected. Though this makes the bank prone to some risk, its financial status remains unaffected and therefore, any steps toward a crisis would create a havoc in the global world.
JPMorgan Chase and Company
Another extremely popular name, JPMorgan is a multinational banking and financial services company headquartered in New York City (US). It is the largest bank in the United States and the world’s third largest by total assets. Considering the fact that United States is the most powerful economy of the world and this bank is the nation’s most powerful, JPMorgan is one of the most trustworthy financial institutions globally. Not only this, but the bank’s hedge fund is also the second largest hedge fund in US and provides a number of services such as asset banking, investment banking, private banking, wealth management, treasury services etc. Although the name has been associated with a large number of controversies, it is basically the power that it holds that makes it a huge player in the global markets, a name that if goes in the crisis list, would take along a lot of money. Also to note, Morgan also holds huge amount of American investments, which make it even more dependable.
This is another name in the list of the American financial institutions that almost rule the world. It is a universal bank with expertise in retail, wholesale and investment banking, having 325 years of incredible experience. The company traces its origins to a goldsmith banking business established in London in 1690, which is primarily why this bank is the most trusted among all. The company has also made numerous capital acquisitions in its past history and is also the most powerful transnational corporation in terms of ownership and corporate control over global financial stability and market competition. Needless to say, if Barclays goes bankrupt, half of the global market follows suit.
Deutsche bank is a German global financial services company with its headquarters in Frankfurt. The bank employees more than a lakh people in more than 70 nations around the world and has a large presence in Europe, America, Asia Pacific and many emerging markets such as India. In 2009, the bank was declared the largest foreign exchange in the world which is one of the main reasons why most of the world’s nations are dependent on this institution. The bank specialises in offering financial products to its business and corporate clients and has expertise in investment banking. In 2014, the bank surprisingly reported a net loss of $1.6 billion, contrary to the expectations of a net profit of about $750 million! This had then shaken the global economy, with stocks falling, investors going bankrupt and many nations facing a plunge in their exchange rates. This is when we had an idea of how the world could be affected in case the institution falls completely.
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