Question

discuss the type of risks caused by 2008 financial crises in Ireland and Europe. Risks to be discussed are: liquidity risk, credit risk, and operational risk

Please write at least one to two paragraphs.

Answer 1

The global financial crisis of 2008 also known as the subprime lending crisis had its roots embedded in the CDO's ( collateralized debt obligations). As the CDO represented a pool of loans that had been securitized for liquidity by the banks when the underlying loans defaulted the CDO went bad and as a result, the investor's value of CDO crashed significantly.

Ireland was one of the first hit countries from the subprime lending crisis and a result of this mayhem was the Anglo Irish bank going into bankruptcy and the Ireland government bailing out the bank from its situation

The impact on Europe as a continent was that with the failing of Icelandic banking system and the collapse of Lehman brothers it was greatly felt that the markets of Europe were extremely volatile and fragile, investors lost faith in the system, the stock market crashed and the business was left down in the doldrums

Liquidity risk: due to the crash of the CDO the stock market crashed as a result of the defaults in the underlying loans, the stock market crash raised a question on the quality of the loan assets of the banks which lead to a panic withdrawal from the banks. As a result, the banks were unable to pay their depositors hence failing

Credit Risk: The credit risk faced by the holder of the CDO was immense since the CDO represented a pool of subprime loans which had been given in unfavorable conditions to the borrowers, this posed a massive risk to the credit risk. As a result of the massive credit risk, the loans eventually did fail leading to the crisis

Operational Risk: The markets ( stock markets ) were left with low to no investor sentiment to invest and overall the global markets crashed imposing a huge risk to the sustainability to the world economy - as commented by Christine Lagard ( FM France ) and president IMF