Financial crises are not recent events. Through modern times, financial institutions witnessed many turmoils, the most recent with severe consequences was during the years 2007-2009, witnessing the collapse of many large-sized financial institutions.
The aim of this study is a better understanding of "what went wrong" and the main causes and sources of this catastrophic event. Besides, an early warning system concept is exhibited and discussed that will help prevent such crises in the future. The study also revealed the close and explicit relation between the real estate sector and the crisis. In fact, subprime loans were the direct reasons that led to the crisis causing shortage of liquidity and capital buffers of all the financial institutions that encountered the problem or went bankrupt.
The study tackled with the status of four banks, two Lebanese banks and two foreign banks that are operating in the international markets. The analysis was conducted using qualitative methodology trough cases studies to show why and how Lebanese banks were saved from the consequences of the crisis unlike their international peers. From the study it was noted that mainly the prudent monetary policy of Central bank and controls of supervising authorities were behind this resilience. It is evident that, the limited exposure of the Lebanese banks on international markets, the careful and conservative investments in derivatives and complex financial instruments and the prudent practices of Lebanese banks helped substantially the Lebanese banks not encountering the destiny of international banks.
The research is backed by information from the real estate sector in Lebanon and on foreign markets, as well as strategic and financial information on Lebanese and international markets relating to large and complex financial institutions.
Several recommendations were exposed, which if implemented, will surely prevent future crisis in the financial markets.
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