Case Study: Bear Stearns

Jun 21st, 2015
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The case examines how Bear Stearns, the fifth largest investment bank in the US, faced liquidity crisis in March 2008, leading to its collapse. It details the sequence of the events that led to its collapse and the measures taken by the bank to avoid the same.

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Abstract:The case examines how Bear Stearns, the fifth largest investment bank in the US, faced liquidity crisis in March 2008, leading to its collapse. It details the sequence of the events that led to its collapse and the measures taken by the bank to avoid the same. The case covers a detailed note on the sub-prime crisis in the US and how Bear Stearns incurred significant losses in its investments in mortgage backed securities. It also examines the role of the US Fed to bail out Bear Stearns by helping JP Morgan Chase buy the troubled investment bank.Issues: Understand the reasons that led to the subprime crisis in the US and its impact on financial institutions. Appreciate the importance of risk management in financial institutions. Examine the need for strict regulations for controlling OTC derivatives market. Study the drawbacks of high leverage in the investment banking business. Analyze the role played by the US Fed to bail out Bear Stearns.Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."1- Ben Bernanke, Federal Reserve Chairman, in April 2008."You get to where people can't trade with each other. If the Fed hadn't acted this morning and Bear did default on its obligations, then that could have triggered a very widespread panic and potentially a collapse of the financial system."2- James L. Melcher, Preside

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