The biggest financial crises of the past four decades By Reuters

(Reuters) – Markets have seen massive turmoil in the past month, triggered in part by two of the three biggest bank failures in US history, while Swiss lender Credit Suisse was bought by rival UBS Group AG (SIX:) in a merger designed by Swiss. regulators

Fears of bank contagion persist, and investors worry global economies will suffer if the effects of higher interest rates torpedo more lenders. Here’s a rundown of some of the biggest financial crises of the last 40 years:

SAVINGS AND LOANS CRISIS IN THE UNITED STATES

More than 1,000 savings and loan (S&L) institutions disappeared in the crisis that unfolded throughout the 1980s, resulting in up to $124 billion in costs to taxpayers.

The turmoil stemmed from unsound real estate and business loans made by S&Ls after the United States removed interest rate caps on their loans and deposits, allowing them to take more risk.

JUNK BONDS ACCIDENT

After nearly a decade of supercharged growth, the junk bond market crashed in the late 1980s following a series of interest rate hikes by the Federal Reserve.

Michael Milken helped popularize the financial instrument, and many used it as a way to finance leveraged buyouts. But the supply eventually exceeded the demand and the market crashed. Milken was charged with security breaches and reporting. He paid a $200 million fine and served a 22-month jail sentence.

MEXICAN PESO CRISIS

In a surprise move in December 1994, Mexico devalued its currency, the peso, after the country’s current account deficit widened and its international reserves dwindled. The country ended up receiving external financial support from the International Monetary Fund and a $50 billion bailout from the United States.

ASIAN CURRENCY CRISIS

A massive capital outflow from Asian economies in the mid-to-late 1990s put pressure on the region’s currencies, requiring government support.

The crisis began in Thailand, where authorities had to devalue the Thai baht after months of trying to argue that the currency’s peg to the dollar depleted its foreign reserves. The contagion soon spread to other markets in Asia, including Indonesia, South Korea and Malaysia.

Global bodies, including the International Monetary Fund and the World Bank, had to step in with rescue packages worth more than $100 billion for economies.

LONG TERM CAPITAL MANAGEMENT (LTCM)

The highly leveraged American hedge fund lost more than $4 billion in a span of just a few months in 1998 following the Asian crisis and a subsequent financial crisis in Russia. The fund had a large exposure to Russian government bonds and suffered significant losses after Russia defaulted on its debt and devalued its currency.

The Federal Reserve Bank of New York helped broker a $3.5 billion private sector bailout for LTCM, and the Federal Reserve cut interest rates three times in successive months.

GLOBAL FINANCIAL CRISIS OF 2008

The biggest financial crisis since the Great Depression stemmed from risky lending to shaky borrowers, which began to lose value after central banks raised interest rates in the run-up to the crisis. Many companies had taken large positions in highly leveraged mortgage bonds that had proliferated in previous years.

The crisis led to the collapse of some historic Wall Street giants, including Bear Stearns and Lehman Brothers, which had large positions in mortgage securities. The debacle also affected insurance giant American International Group (NYSE), which needed a $180 billion bailout. The US government closed Washington Mutual in what was the largest bankruptcy in US bank history. The “Great Recession” that resulted was the worst economic downturn in 70 years.

EUROPEAN DEBT CRISIS

Spurred by the 2008 financial crisis, rising debt in some major European economies led to a loss of business confidence in the region.

Greece was one of the hardest hit, as its main industries of shipping and tourism were economically sensitive. It was the first to be bailed out by other euro zone economies. Portugal, Ireland and Cyprus were also bailed out of default and unemployment rose, particularly in countries bordering the Mediterranean Sea.

Sources: Central bank reports, media reports