Research Handbooks in Financial Law series
Edited by Matthias Haentjens and Bob Wessels
Chapter 10: Rescuing banks in crisis: Towards a theoretical turnaround management perspective
During the recent global financial crisis many banks were in financial trouble. Governments and central banks injected large amounts of capital in order to prevent the collapse of the financial sector (and possibly the economy as a whole). Of course, macro-economic conditions had worsened and strong appeals were made for (political) action. Moreover, banks formed a rather complex and interrelated industry with particular risk of ‘infection through contagion’. But still, was such rescue also warranted from a micro-economic perspective? Why did many (individual) banks become financially distressed? What caused the success or failure of a bank, and how did some manage to turn the tide? Can lessons be learned from these failures and turnarounds? Do these lessons perhaps resemble failure factors and turnaround plans of other types of business? And if so, is it possible to build a general turnaround framework, based on existing empirical research, to prevent individual banks collapsing in the future? This chapter elaborates on these questions. It starts with an overview of the basic ideas and main principles of firm existence, failure, and turnaround. Also, causes of failure in general will be compared with the failure of banks in particular. Then, a discussion will follow whether, and if so in what way, differences between banks and other types of business influence the content and process of a bank turnaround plan and execution.
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