Rise and Fall of the Bear

Case 1: Investment Banking – Rise and Fall of the Bear

Table of Contents

1. Failure Analysis 3

1.1. Identify the major factors that contributed to Bear Stearns' failure? 3

1.2. Who stood to benefit from its implosion? 4

1.3. How did Bear Stearns's collapse differ from the ‘Long Term Capital Management' failure a decade earlier? 4

1.4. What could Bear Stearns have done differently to avoid this fate? 4

1.4.1. In the early 2000's? 4

1.4.2. And during the summer of 2007? 4

1.4.3. And during the week of March 10, 2008? 4

2. Liquidity Crisis and Business Model of Investment Banks 4

2.1. What is the role of Liquidity for banking and investing banking firms? 4

2.2. Is perception of Liquidity more important for a banking/investment banking firm than manufacturing firms (such as Ford or Boeing)? Why? 4

2.3. What could Bear Stearns have done to address its Liquidity concerns, which initiated the run on the bank? 4

2.4. Looking back, what lessons can we infer from Bear Stearns's failure regarding the business model of investment banks? 4

2.5. Looking forward is the concept of ‘pure-play" investment banks sustainable? 4

3. Systemic Banking Crisis and Regulation 4

3.1. What is a "systemic banking crisis"? 4

3.2. What is ‘banking contagion"? 4

3.3. What was the rationale for the creation of ‘fire-wall' of separation between investment banking and commercial banking in USA that was institutionalized by the Banking Act of 1933? 4

3.4. Why did the regulators weaken and phase out that ‘fire-wall of separation' in 1990s? 5

3.5. Identify the major Deregulatory Acts and its role in the meltdown of the investment banking industry? 5

3.6. In your opinion, based on lessons from past global banking crisis, what steps should regulators institute now to address similar future problems? 5

4. Federal Bailout and Public Policy 5

4.1. Why did the Federal Reserve bail-out Bear Stearns? 5

4.2. Why was Lehman Brothers allowed to collapse while Bear Stearns was not? 5

4.3. Is