Multinational Banks In The Sub-prime Crisis: Risk Management, Crisis Dealing And Its Enlightenments

The U.S. sub-prime crisis has exerted a dramatic impact on the world's financial system and the global economic development, since it erupted in May, 2007. The victims also include some very famous multinational financial institutions like HSBC and Citigroup. Those multinational banks, which used to boast of their advanced management, active financial innovations and prudent risk management in particular, are really in trouble in the sub-prime crisis, due to the failure of the financial risk management system. Although China's state-owned commercial banks' loss in the crisis is quite limited, this does not mean that their risk management systems are good enough to withstand the impact of the crisis. In fact, they just benefit from the finite opening-up of China's financial markets and little participation in the financial derivative transactions. In order to seize the opportunity in the financial tsunami and bridge the gap in management, operation, innovation and risk management, it's extremely important for China's state-owned commercial banks to learn from the lessons of U.S. and European banks, improve their own risk management system according to the new global situation and strengthen their ability to withstand financial risks.This thesis focuses on the impact of the sub-prime crisis on the multinational banks from the aspects of financial instruments' innovations and comprehensive operations. First of all, this thesis analyzes how the rapid development of the credit risk transfer technique influenced the multinational banks' operational model before the sub-prime crisis. Then, this thesis turns to the impact of the sub-prime crisis on the multinational banks and discusses the real effects of the "de-leverage" strategy. The thesis analyzes and compares the different risk management systems and crisis-tackling programs of HSBC and Citigroup. Based on the analysis of the financial statements, the thesis explores the source of the huge losses of the two banks. After that, I further discuss the reasons why HSBC's loss was less and its reaction was more efficient than Citigroup in the crisis by comparing the two banks' different risk management systems. Lastly, the thesis mainly discusses the possible risks induced in the process of China's state-owned commercial banks' financial instrument innovations and the comprehensive operation in the form of the financial holding company, further exploring how to optimize the "firewall" settings under the comprehensive business model on the basis of the case study of HSBC and Citigroup. Based on the in-depth analysis of the risks and performances of the multinational banks in the crisis, the thesis reflects on the potential defects of the new "Basel II", which is the main current framework for the supervisions of the multinational banks. This thesis also sheds light on the lessons and enlightenments of the sub-prime crisis, which are supposed to be learned by China's regulatory institutions.