# data[].attributes.body
Los estudiantes investigarán diferentes tipos de instituciones financieras (bancos, cooperativas de crédito, bolsas de valores, etc.). Deberán preparar una presentación en PowerPoint sobre una institución de su elección, incluyendo su historia, servicios que ofrecen y su impacto en el sistema financiero.

# data[].attributes.attachment_link.readable_text
What Is a Financial Institution (FI)?

A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions include a broad range of business operations within the financial services sector, including banks, insurance companies, brokerage firms, and investment dealers.

Virtually everyone living in a developed economy has an ongoing or at least periodic need for a financial institution's services.

Key Takeaways

Understanding Financial Institutions (FIs)

Financial institutions often match savers' or investors' funds with those seeking funds, such as borrowers or businesses seeking to trade shares of ownership for funds. Typically, this leads to future payments from the borrower or business to the saver or investor. The tools for matching all of these parties up include products such as loans, and markets, such as a stock exchange.

At the most basic level, financial institutions allow people to access the money they need. For example, although banks do many things, their primary role is to take in funds-called deposits-from those with money, pool the deposits, and lend the money to others who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (who the bank lends money to).

This works well because while some depositors need their money at any given moment, most do not. So banks can use deposits to make long-term loans. This applies to almost every entity and individual in a capitalist system: individuals and households, financial and nonfinancial firms, and national and local governments.

Financial institutions serve most people in some way as a critical part of any economy-whether in banking, insurance, or securities markets. Individuals and companies rely on financial institutions for transactions and investing. For example, the health of a nation's banking system is a linchpin of economic stability. Loss of confidence in a financial institution can easily lead to a bank run.

The Function of Financial Institutions in Capital Markets

Capital markets are important for functioning capitalist economies because they channel savings and investments between suppliers and those in need. Suppliers are people or institutions with capital to lend or invest. Suppliers typically include banks and investors. Those seeking capital are businesses, governments, and individuals.

Financial institutions play an important role in capital markets, directing capital to where it is most useful. For example, a bank takes in deposits from customers and lends the money to borrowers, ensuring capital markets' efficient function.

Regulation

Governments oversee and regulate banks and financial institutions because the institutions play an integral economic role. Bankruptcies of financial institutions, for instance, can create panic. Federal and state agencies can regulate financial institutions. Sometimes, multiple agencies regulate the same institution.

Federal Depository Regulators

Federal depository regulators oversee commercial banks, thrifts (savings associations), and credit unions accepting customer deposits.

U.S. Federal Reserve (The Fed): Regulator of Federal Reserve System member state banks, foreign banking organizations operating in the United States, and financial holding companies.

Office of the Comptroller of the Currency (OCC): The OCC is responsible for seeing that national banks and federal savings associations operate safely, provide equal access to financial services, treat customers fairly, and comply with applicable laws and regulations. It also regulates U.S. federal branches of foreign banks and federally chartered thrift institutions.

Federal Deposit Insurance Corporation (FDIC): The FDIC regulates federally insured depository institutions, state banks that aren't members of the Federal Reserve System, and state-chartered thrift institutions.

National Credit Union Administration (NCUA): NCUA supervises and insures federally chartered or insured credit unions.

Federal Securities Markets Regulators

Two federal institutions regulate products, markets, and market participants for securities such as stocks, bonds, and derivatives.

Securities and Exchange Commission (SEC): The SEC regulates securities exchanges, broker-dealers, and corporations selling securities to the public; investment funds, including mutual funds; investment advisers, including hedge funds with assets over $150 million; and investment companies.

Commodities Futures Trading Commission (CFTC): The CFTC regulates futures exchanges, futures commission merchants, commodity pool operators, commodity trading advisors, derivatives, clearing organizations, and designated contract markets.

Government-Sponsored Enterprise (GSE) Regulators

These dedicated regulators exclusively oversee government-sponsored enterprises, which are quasi-governmental entities established to enhance the flow of credit to specific sectors of the U.S. economy.

Federal Housing Finance Agency: The FHFA supervises, regulates, and performs oversight of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Bank System.

Farm Credit Administration: This agency regulates Farm Credit System institutions and Farmer Mac, credit sources for eligible persons in agriculture and rural America.

Consumer Protection Regulator

Currently, the Consumer Financial Protection Bureau (CFPB) is the only national consumer entity tasked with exclusively regulating consumer products. CFPB's purview includes nonbank mortgage-related firms, private student lenders, payday lenders, and other large "consumer financial entities," as determined by the CFPB. CFPB is the rulemaking consumer protection authority for all banks and has supervisory authority for banks with more than $10 billion in assets.

State Regulators

States may regulate financial institutions in addition to or instead of federal regulators. For example, there is minimal federal oversight of the insurance industry. Each state government has a department that licenses and regulates insurance companies and any company selling insurance products. States may also regulate banking, securities, and consumer protections in addition to federal regulators who work in those areas.

Types of Financial Institutions

Financial institutions offer various products and services for individual and commercial clients. The specific services offered vary widely between different types of financial institutions. Here are some of the types consumers are most likely to use:

Banks, Credit Unions, and Savings & Loans

These financial institutions accept deposits and offers checking and savings account services; make business, personal, and mortgage loans; and provides basic financial products like certificates of deposit (CDs). They may also act as payment agents via credit cards, wire transfers, and currency exchange.

These types of financial institution can include:

Commercial or private banks

Savings and loans associations

Credit unions

Foreign banks

Savings banks, industrial institutions, thrifts

Investment Companies, Advisors, and Brokers

Investment companies issue and invest in securities (stocks, bonds, mutual funds and ETFs or exchange-traded funds). Mutual funds are one example of a product offered by an investment company, where many investors' money is pooled and invested in stocks, bonds, money market instruments, other securities, or even cash in an ongoing manner.

Other examples of investment-related financial institutions include investment advisors and brokers. Brokers accept and carry out orders to buy and sell investments (such as securities) for customers.

Insurance Companies

Among the most familiar non-bank financial institutions are insurance companies. Providing insurance for individuals or corporations is one of the oldest financial services. Protection of assets and protection against financial risk, secured through insurance products, is an essential service that facilitates individual and corporate investments that fuel economic growth.

Insurance is primarily regulated at the state level, but the U.S. Treasury's Federal Insurance Office (FIO) does monitor the industry and plays an advisory role.

Why Are Financial Institutions Important?

Financial institutions are essential because they provide a marketplace for money and assets so that capital can be efficiently allocated to where it is most useful. For example, a bank takes in customer deposits and lends the money to borrowers. Without the bank as an intermediary, any individual is unlikely to find a qualified borrower or know how to service the loan. Via the bank, the depositor can earn interest as a result. Likewise, investment banks find investors to market a company's shares or bonds to.

What Are the Different Types of Financial Institutions?

The most common types of financial institutions include banks, credit unions, insurance companies, and investment companies. These entities offer various products and services for individual and commercial clients, such as deposits, loans, investments, and currency exchange.

Which Agency Oversees Banking Operations in the United States?

Several agencies oversee banking operations in the U.S., including the Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA).

What's the Difference Between a Commercial and Investment Bank?

A commercial bank, where most people do their banking, is a type of financial institution that accepts deposits, offers checking account services, makes business, personal, and mortgage loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses.
Investment banks specialize in providing services designed to facilitate business operations. This might include raising money through financing and equity offerings, including initial public offerings (IPOs). They also commonly offer brokerage services for investors, act as market makers for trading exchanges, and manage mergers, acquisitions, and other corporate restructurings.

Which Agency Regulates Investment Banking Firms?

The Securities and Exchange Commission (SEC) oversees the operations of investment banks as these banks deal with securities.

The Bottom Line

Financial institutions help keep capitalist economies running by matching people who need funds with those who can lend or invest it. They offer a wide range of business operations within the financial services sector including banks, credit unions, insurance companies, and brokerage firms. Regulatory agencies such as the OCC, the SEC, the FDIC, and the Federal Reserve oversee the operations of financial institutions in the United States.

# data[].attributes.attachment_link.description
A financial institution (FI) is a company that focuses on dealing with financial transactions, such as investments, loans, and deposits.

# data[].attributes.body
Los alumnos deberán comparar diferentes tipos de cuentas bancarias ofrecidas por varias instituciones. Deben identificar las ventajas y desventajas de cada tipo de cuenta (ahorros, corriente, etc.) y presentar sus hallazgos en un informe escrito.

# data[].attributes.body
Los estudiantes utilizarán una herramienta en línea para simular cómo invertir en el mercado de valores. Elegirán acciones de diferentes empresas y monitorearán sus inversiones durante una semana para observar las fluctuaciones.

# data[].attributes.attachment_link.title
Simulator - Investopedia Stock Simulator

# data[].attributes.body
En pequeños grupos, los estudiantes investigarán cómo las tasas de interés afectan a los préstamos y ahorros. Prepararán un resumen de sus hallazgos utilizando gráficos y estadísticas encontrados en línea.

# data[].attributes.attachment_link.readable_text
Changes in interest rates can have both positive and negative effects on the U.S. markets. When the Federal Reserve Board (the Fed) changes the rate at which banks borrow money, this has a ripple effect across the entire economy. Below, we will examine how interest rates can have an effect on the economy as a whole, the stock and bond markets, inflation and recessions.

With every loan, there is a possibility that the borrower will not repay the money. To compensate lenders for that risk, there must be a reward: interest. Interest is the amount of money that lenders earn when they make a loan that the borrower repays, and the interest rate is the percentage of the loan amount that the lender charges to lend money.

The existence of interest allows borrowers to spend money immediately, instead of waiting to save the money to make a purchase. The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more money to spend, which can create a ripple effect of increased spending throughout the economy. Businesses and farmers also benefit from lower interest rates, as it encourages them to make large equipment purchases due to the low cost of borrowing. This creates a situation where output and productivity increase.

Conversely, higher interest rates mean that consumers don't have as much disposable income and must cut back on spending. When higher interest rates are coupled with increased lending standards, banks make fewer loans. This affects not only consumers but also businesses and farmers, who cut back on spending for new equipment, thus slowing productivity or reducing the number of employees. The tighter lending standards also mean that consumers will cut back on spending, and this will affect many businesses' bottom lines.

Whenever interest rates are rising or falling, you commonly hear about the federal funds rate. This is the rate that banks use to lend each other money. It can change daily, and because this rate's movement affects all other loan rates, it is used as an indicator to show whether interest rates are rising or falling.

These changes can affect both inflation and recessions. Inflation refers to the rise in the price of goods and services over time. It is the result of a strong and healthy economy. However, if inflation is left unchecked, it can lead to a significant loss of purchasing power.

To help keep inflation manageable, the Fed watches inflation indicators such as the Consumer Price Index (CPI) and the Producer Price Index (PPI). When these indicators start to rise more than 2-3% a year, the Fed will raise the federal funds rate to keep the rising prices under control. Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.

A good example of this occurred between 1981 and 1982. Inflation was at 14% a year, and the Fed raised interest rates to 20%. This caused a severe recession, but it did put an end to the spiraling inflation that the country was seeing. Conversely, falling interest rates can cause recessions to end. When the Fed lowers the federal funds rate, borrowing money becomes cheaper; this entices people to start spending again.

A good example of this occurred from 2001 to 2002, when the Fed cut the federal funds rate to 1.25%. This greatly contributed to the economy's 2003 recovery. By raising and lowering the federal funds rate, the Fed can prevent runaway inflation and lessen the severity of recessions.

Investors have a wide variety of investment options. When comparing the average dividend yield on a blue-chip stock to the interest rate on a certificate of deposit (CD) or the yield on a U.S. Treasury bond (T-bonds), investors will often choose the option that provides the highest rate of return. The current federal funds rate tends to determine how investors will invest their money, as the returns on both CDs and T-bonds are affected by this rate.

Rising or falling interest rates also affect consumer and business psychology. When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.

Interest rates also affect bond prices. There is an inverse relationship between bond prices and interest rates, meaning that as interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. The longer the maturity of the bond, the more it will fluctuate in relation to interest rates.

One way that governments and businesses raise money is through the sale of bonds. As interest rates move up, the cost of borrowing becomes more expensive. This means that demand for lower-yield bonds will drop, causing their price to drop. As interest rates fall, it becomes easier to borrow money, and many companies will issue new bonds to finance expansion. This will cause the demand for higher-yielding bonds to increase, forcing bond prices higher. Issuers of callable bonds may choose to refinance by calling their existing bonds so they can lock in a lower interest rate.

Interest rates affect the economy by influencing stock and bond interest rates, consumer and business spending, inflation, and recessions. However, it is important to understand that there is generally a 12-month lag in the economy, meaning that it will take at least 12 months for the effects of any increase or decrease in interest rates to be felt. By adjusting the federal funds rate, the Fed helps keep the economy in balance over the long term. Understanding the relationship between interest rates and the U.S. economy will allow us to understand the big picture and make better investment decisions.

# data[].attributes.attachment_link.title
How Interest Rates Affect the U.S. Markets

# data[].attributes.attachment_link.description
Changes in interest rates can have both positive and negative effects on the U.S. markets. When the Federal Reserve Board (the Fed) changes the rate at which banks borrow money, this has a ripple effect across the entire economy.

# data[].attributes.body
Los alumnos investigarán la evolución del sistema monetario internacional y realizarán una línea de tiempo que muestre los eventos más significativos en su desarrollo.

# data[].attributes.attachment_link.readable_text
Money, whether it's represented by a seashell, a metal coin, a piece of paper, or a string of code electronically mined by computer, doesn't always have value. Its total global value-currently estimated to be around $420 trillion-depends on the importance that people place on it as a medium of exchange, a unit of measurement, and a storehouse for wealth.

Money allows people to trade goods and services indirectly. It helps communicate the price of goods, and it provides individuals with a way to store their wealth.

Money is valuable as a unit of account-a socially accepted standard by which things are priced and with which payment is accepted. However, throughout history, both the usage and form of money have evolved.

Though the terms "money" and "currency" are often used interchangeably, several theories suggest that they are not identical. According to some theories, money is inherently an intangible concept, while currency is the physical (tangible) manifestation of the intangible concept of money.

By extension, according to this theory, money cannot be touched or smelled. Currency is the coin, note, object, etc. that is presented in the form of money. The basic form of money is numbers; currently, the basic form of currency is paper notes, coins, or plastic cards (e.g., credit or debit cards). Though this distinction between money and currency is important in some contexts, for the purposes of this article, the terms are used interchangeably.

The Transition From Bartering to Currency

Money-in some form or another-has been part of human history for at least the past 5,000 years. Before that time, historians generally agree that a system of bartering was likely used.

Bartering is a direct trade of goods and services; for example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker. However, these arrangements take time. If you are exchanging an ax as part of an agreement in which the other party is supposed to kill a woolly mammoth, you have to find someone who thinks an ax is a fair trade for having to face down the 12-foot tusks of a mammoth. If this doesn't work, you would have to alter the deal until someone agreed to the terms.

Slowly, a type of currency developed over the centuries that involved easily traded items like animal skins, salt, and weapons. These traded goods served as the medium of exchange (even though the value of each of these items was still negotiable in many cases). This system of trading spread across the world and still survives today in some parts of the globe.

One of the greatest achievements of the introduction of money was the increased speed at which business, whether it involved mammoth-slaying or monument-building, could be done.

In early August 2021, Chinese archaeologists with the State University of Zhengzhou announced that they had discovered the world's oldest known, securely dated coin minting site. A mint is a facility where currency is created. Sometime around 640 BCE, this facility, located in Guanzhuang in Henan Province, China, began striking spade coins, one of the first standardized forms of metal coinage.

First Official Currency Is Minted

Meanwhile, further west during this era, the sixth-century BCE Greek poet Xenophanes, quoted by the historian Herodotus, ascribed the invention of metal coinage to the Lydians. In 600 BCE, Lydia's King Alyattes minted what is believed to be the first official currency, the Lydian stater.

The coins were made from electrum, a mixture of silver and gold that occurs naturally, and the coins were stamped with pictures that acted as denominations. In the streets of Sardis, in approximately 600 BCE, a clay jar might cost you two owls and a snake.

Lydia's currency helped the country increase both its internal and external trading systems, making it one of the richest empires in Asia Minor. Today, when someone says, "as rich as Croesus", they are referring to the last Lydian king who minted the first gold coin.

Transition to Paper Currency

During 1260 CE, the Yuan dynasty of China moved from coins to paper money. By the time Marco Polo-the Venetian merchant, explorer, and writer who traveled through Asia along the Silk Road between 1271 and 1295 CE-visited China in approximately 1271 CE, the emperor of China had a good handle on both the money supply and its various denominations. In fact, in the place where modern American bills say, "In God We Trust," the Chinese inscription at that time warned: "Those who are counterfeiting will be beheaded."

Parts of Europe were still using metal coins as their sole form of currency until the 16th century. Colonial acquisitions of new territories via European conquest provided new sources of precious metals and enabled European nations to keep minting a greater quantity ofcoins.

However, banks eventually started using paper banknotes for depositors and borrowers to carry around in place of metal coins. These notes could be taken to the bank at any time and exchanged for their face value in metal-usually silver or gold-coins. This paper money could be used to buy goods and services. In this way, it operated much like currency does today in the modern world. However, it was issued by banks and private institutions, not the government, which is now responsible for issuing currency in most countries.

The first paper currency issued by European governments was actually issued by their colonial governments in North America. Because shipments between Europe and the North American colonies took a long time, colonies often ran out of cash. Instead of going back to a barter system, the colonial governments issued IOUs that traded as currency. The first instance was in Canada (then a French colony). In 1685, soldiers were issued playing cards denominated and signed by the governor to use as cash instead of coins from France.

The Emergence of Currency Wars

The shift to paper money in Europe increased the amount of international trade that could occur. Banks and the ruling classes started buying currencies from other nations and created the first currency market. The stability of a particular monarchy or government affected the value of the country's currency, and thus, that country's ability to trade on an increasingly international market.

The competition between countries often led to currency wars, where competing countries would try to change the value of the competitor's currency by driving it up and making the enemy's goods too expensive, by driving it down and reducing the enemy's buying power (and ability to pay for a war), or by eliminating the currency completely.

Mobile Payments

The 21st century has given rise to two novel forms of currency: mobile payments and virtual currency. Mobile payments are money rendered for a product or service through a portable electronic device, such as a cellphone, smartphone, or tablet device.

Mobile payment technology can also be used to send money to friends or family members. Increasingly, services like Apple Pay and Google Pay are vying for retailers to accept their platforms for point-of-sale payments.

Virtual Currency

Bitcoin​, released in 2009 by the pseudonymous Satoshi Nakamoto, quickly became the standard for virtual currencies. All of the world's bitcoin, as of June 2022, were worth just over $392 billion. Virtual currencies have no physical coinage. The appeal of virtual currency is that it offers the promise of lower transaction fees than traditional online payment mechanisms do and is operated by decentralized authorities, unlike government-issued currencies.

How Long Has Money Been Around, and What Were the First Forms of Value Exchange?

When and Where Did Coin Minting Begin?

When Were Coins Replaced by Paper Money?

The Bottom Line

The history of money is still being written. The system of exchange has moved from swapping animal skins to minting coins to printing paper money, and today, we appear to be on the cusp of a massive shift to electronic transactions. Ancient transaction forms have been co-opted: for example, bartering still occurs on the margins in some markets such as the business-to-business (B2B) space and some consumer services. The monetary system will surely continue evolving as long as humans require a medium of exchange.

# data[].attributes.attachment_link.title
The History of Money: From Bartering to Banknotes to Bitcoin

# data[].attributes.attachment_link.description
Money, whether it's represented by a seashell, a metal coin, a piece of paper, or a string of code electronically mined by computer, doesn't always have value. Its total global value-currently estimated to be around $420 trillion-depends on the importance that people place on it as a medium of exchange, a unit of measurement, and a storehouse for wealth.

# data[].attributes.body
Los estudiantes investigarán el rol que juega el Banco Central en la economía nacional. Presentarán sus hallazgos en un ensayo, incluyendo su impacto en la inflación y política monetaria.

# data[].attributes.attachment_link.title
What are central banks and why are they so important?

# data[].attributes.attachment_link.description
Discover what this public institution does, which plays such a key role in the economy of a country or group of countries, and learn about its responsibilities

# data[].attributes.body
Analizar un caso de estudio de una crisis financiera significativa (como la Crisis Financiera de 2008) y discutir en clase las lecciones aprendidas y cómo afectan al sistema financiero actual.

# data[].attributes.attachment_link.readable_text
In 2008, there were real concerns that the US economy was actually going to collapse. That would have led to a big recession, or perhaps another depression to rival the Great Depression of the 1920s and 1930s. But it was not just the US that was struggling. The entire global economy was experiencing crisis-level issues that most people were not sure how to solve. All many people could do was watch and wait, hoping that their investments would recover and their home values would rise again. There were also a lot of worries over jobs, and people who had very high-risk and high-end portfolios saw hundreds of thousands or even millions of dollars virtually evaporate, almost overnight. Here is what you need to know about the 2008 financial crisis and the lessons learned from it.

An Overview of the Crisis

The financial crisis that plagued 2008 actually started in 2007. That was the year that some of the mortgage securities essentially stopped working, because buyers and sellers of homes could not agree on prices. Typically, the financial market works well because buyers and sellers come to agreements. The government does not need to set prices or try to control those prices, because there will always be people who want to sell in a certain price range and people who want to buy in that same range. They can find a way to make a deal happen, and everyone is satisfied. But when that stopped working properly, due to a lack of pricing agreement, the impasse began to spread to other types of debt markets, as well. That spread was the start of the financial crisis for most markets.

The solvency of some banks was called into question by other banks, and that meant the two did not want to do business together. They suddenly failed to trust one another, even if they had been doing business together for a number of years. In the latter part of 2008, governments jumped in to assure the public that big banks would not be allowed to fail. Only then did the economy start moving again, and it was still a struggle to gain much traction. A lot of large companies, such as many US automakers, also accepted bailouts from the government in order to keep themselves afloat, because the economy had gone down so rapidly and recovery was very slow. In some parts of the world - most notably Spain and Greece - impacts from the 2008 crisis still linger.

Companies Took Actions That Defined Them

A number of companies went out of business in 2008 and the few years after that when the economy had still not fully recovered. These companies took actions they felt were right during the recession and afterward, but the problem was that a lot of these companies did not react quickly enough to the changing economic climate. People in the US mostly thought about what was taking place in their country, unless they came from another area of the world originally or kept up with international news. It was not always easy for people to acknowledge the damage the financial crisis was doing in other areas, largely because of the way many governments tried to downplay the seriousness of events. But companies that took rapid action generally fared better than others.

The US automotive industry was one of the areas on which a lot of people within the country focused. With the notable exception of Ford Motor Company, US automakers all took bailout money. Ford remained solvent enough not to need it, through smart management moves, layoffs, and cutbacks. The other automakers repaid the money when their situations improved, but it showed them that they may not have been as prepared for disaster as they first thought. Having a crisis management plan is very important, and it is one of the ways a company can protect itself if and when there is a crisis it is facing. But a lot of large companies in many sectors around the world were ill-prepared for the wide-ranging magnitude of the crisis in the financial markets.

Even companies that had crisis plans already in place started to quickly discover that they were not really prepared for something as large as a global financial crisis. While that was understandable, it left companies struggling to decide what to do. A lot of companies failed to figure it out in time, and they ended up closing up during the recession or in the months and years that followed. Companies that did make it through the crisis intact often had to take on more debt in order to remain solvent. They ended up owing more than they had before the crisis, and in some cases they are still paying that debt off, more than a decade later. Restructuring and renegotiating became common and popular for big and small companies during the 2008 financial crisis and beyond.

What Crisis Steps Companies Could Have Considered

Like with most issues that can be difficult to navigate when they are not easily understood or they are completely unexpected, the financial crisis left a lot of companies confused and overwhelmed. But there were steps that these companies could have considered, and which were mostly overlooked by the majority. Because a lot of companies did not have a crisis management plan, or did not have one that was complete enough for the situation in which they found themselves, they did not always make the best decision. That largely came down to companies realizing that they were sinking quickly, so they started making quick decisions in an effort to right the ship. Those decisions often just made a bad situation worse, instead of helping them get back on the right track.

Companies could have considered a lot of different things to stay afloat, but many of them waited too long and then panicked. Crisis steps that would have helped them succeed through adversity include being more aware of changing markets earlier on in the crisis, and not waiting for it to get better instead of doing something about the way it was at the moment. In other words, companies mostly just hung on and waited for improvement, without having a solid or set idea of when - or if - that improvement was ever going to arrive. Because of that, these companies lost out on a lot of adjustments they could have made in order to remain more solvent. Pulling back would have been a financially safer alternative, and companies that did so generally had a more successful outcome.

Struggling companies could have also reached out to crisis management professionals more quickly, in order to ensure that they had a plan in place. By working to mitigate the damage right from the start, these companies would have had a much easier time throughout the financial crisis and beyond. There was just one big problem with companies and their ability to do this: most of them did not know that the financial crisis would become so bad or go on for so long. In an effort not to overreact, most companies actually underreacted and ended up with serious financial problems - if they were able to stay afloat at all. Companies that made it through the crisis learned a lot of valuable lessons, though, which they could carry forward with them well beyond the crisis.

How Companies Found Ways to Survive

For the companies that did survive the 2008 financial crisis, and those that even got through the crisis relatively easily or with little to no lasting damage, there were a number of ways they succeeded when some of their competitors did not. The biggest way that companies survived was by noticing the severity of the issue early on and doing something about it right away. Effectively, companies that looked like they were overreacting for the current severity of the issue were actually doing what was needed for the future severity of the crisis. They survived due to that level of preparedness. Generally, these companies also had good crisis management plans in place. While those plans may not have been completely adequate, they were a good start toward survival.

When it came to finding ways to survive, companies also did what they had to do in that they cut back on their spending, their labor, their overhead costs, and much more. By pulling back at the beginning of the 2008 financial crisis instead of when it was essentially forced on them by market conditions, they were better able to weather the storm effectively. There were people who lost their jobs due to this, though, and that hurt the economy overall. Companies that tried not to cause additional economic harm or lay off people who needed their jobs were not as successful at getting through the crisis because their financial outlay was still too high to be acceptable when it came to navigating uncertain waters and a damaged economy that extended around the globe.

There were industries that were eligible for government bailouts and subsidies, and companies in those industries found ways to survive by accepting the help they really needed to stay afloat. They often still had to make changes, lay off employees, and pull back some from their usual ways of operating. But even when they did that, the additional help was what got them through the worst of the crisis. These companies would not have been as successful at applying for loans, because banking was one of the sectors that was struggling the most. It was very hard to get loans or mortgages, and many people who had credit lines or equity lines on their homes or businesses saw those lines frozen as property values plummeted and the financial sector struggled to recover.

Lessons Learned From the 2008 Financial Crisis

Like any major shake-up that affects the global economy, there were lessons to be learned from the 2008 financial crisis. The biggest of those was to be prepared, but it was also a good reminder that there are things that are very hard to be prepared for. Trying to get ready for something such as an impending, global economic collapse is not realistic for most companies, many of which run on thin margins and may not be able to have the kind of solvency needed to survive a significant or long-term recession. Still, preparing as much as possible is important, as is taking crisis management and planning seriously. Companies that had good crisis management plans fared better overall than those that did not, or that had not updated their plans in some time.

Another important lesson from the financial crisis of 2008 was to start early with making changes when a problem arises. Most of the companies that appeared to overreact at the beginning are still around today, while companies that did not take quick action failed in greater numbers. That is important to consider, because many companies want to wait and see how things develop before making a lot of changes. While it is understandable to want to do that, it may not be the wisest course of action during a crisis. Paying close attention to the predictions of experts - and taking those predictions seriously - can be the difference between a company making it or not, when there is a crisis looming in the financial world or other areas of business and life.

In short, prepared companies that took quick action were the ones that survived the 2008 financial crisis more easily. They were also the ones who needed less help and the ones who got back on their feet faster when the crisis had passed. There are no guarantees that good planning and quick action can save a company, but the chances of success are higher when those things are carefully considered. Proper crisis management is a big part of that, and something all companies should have learned after witnessing or experiencing what took place in 2007-2008, as well as the way it affected companies for years afterward.

Want to work with us or learn more about Crisis Management?

Our proprietary Resiliency Diagnosis process is the perfect way to advance your crisis management, business continuity, and crisis communications program. Our thorough standards-based review culminates in a full report, maturity model scoring, and a clear set of recommendations for improvement.

Our Crisis Management services help you rapidly implement and mature your program to ensure your organization is prepared for what lies ahead.

Our Ultimate Guide to Crisis Management contains everything you need to know about Crisis Management.

Our Free Crisis Management 101 Introductory Course may help you with an introduction to the world of crisis management - and help prepare your organization for the next major crisis.

Learn about our Free Resources, including articles, a resource library, white papers, reports, free introductory courses, webinars, and more.

Set up an initial call with us to chat further about how we might be able to work together.

# data[].attributes.attachment_link.title
Crisis Management Case Study: 2008 Financial Crisis

# data[].attributes.attachment_link.description
Unpack the complexities of the 2008 financial crisis, its global impact, and the vital lessons learned in this crisis management case study

# data[].attributes.body
Los estudiantes investigarán sobre las criptomonedas y su impacto en el sistema financiero global. Deberán hacer una presentación sobre cómo estas monedas digitales están siendo adoptadas por diferentes países y sus implicaciones económicas.

# data[].attributes.attachment_link.readable_text
Many people are bullish about cryptocurrencies like Bitcoin, but detractors point to a major flaw-cryptocurrency mining is highly energy-intensive. While mining is just one method available to validate cryptocurrency transactions and mint new crypto coins, it's the method used by Bitcoin and Ethereum, the two leading cryptocurrencies.

Keep reading to find out how much energy is used by cryptocurrency mining, and understand the other environmental impacts of cryptocurrency. Learn about alternatives to crypto mining that use much less energy.

Key Takeaways

Cryptocurrency Energy Consumption

There is no direct way to calculate how much energy is used for Bitcoin and cryptocurrency mining, but the figure can be estimated from the network's hashrate and the consumption by commercially-available mining rigs. For example, the Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin, the most widely-mined cryptocurrency network, used an estimated 85 Terawatt-hours (TWh) of electricity (0.38% of global electricity use) and about 218 TWh of energy (0.13% of global energy production) at the point of production-more than Belgium and Finland, using the latest country energy estimates from 2019.

Another estimate by Digiconomist, a cryptocurrency analytics site, places the figure at 130.3 Terawatt-hours, based on energy consumption through July 9, 2022. This computes to around 1,455.8 kilowatt-hours of electricity per transaction, the same amount of power consumed by the average American household over 49.9 days.

Ethereum, the second-largest cryptocurrency network, was estimated to use 62.77 Terawatt-hours of electricity per year, based on energy consumption through July 9, 2022. The average Ethereum transaction required 163 kilowatt-hours of electricity. However, since Ethereum rolled out its proof of work upgrade in September 2022, electrical energy requirements have dropped to 0.01 TWh per year, with one transaction using 0.03 kWh.

The amount of energy consumed by cryptocurrency mining will likely vary over time, assuming that prices and user adoption continue to vary. Cryptocurrency mining is a competitive process: as the value of the block reward increases, the incentives to start mining also go up. Higher cryptocurrency prices mean more energy being consumed by crypto networks.

Why Cryptocurrency Mining Requires Energy

The energy intensity of crypto mining is a feature, not a bug. Bitcoin mining is the automated process of validating Bitcoin transactions without the intervention of trusted third parties like banks.

The way the transaction validation process is designed uses large amounts of energy -the network depends on the computational power of thousands of mining machines. This dependency maintains the security of cryptocurrency blockchains that use proof-of-work consensus.

Environmental Impacts of Cryptocurrency Mining

Calculating the carbon footprint of cryptocurrency is more complicated. Although fossil fuels are the predominant energy source in most countries where cryptocurrency is mined, miners must seek out the most inexpensive energy sources to remain profitable.

Digiconomist estimates that the Bitcoin network is responsible for about 73 million tons of carbon dioxide per year-equal to the amounts generated by Turkmenistan. Based on data through September 2022, Ethereum produced an estimated 35.4 million tons of carbon dioxide emissions before dropping to 0.01 million tons following its transition to proof of work.

Countries With the Largest Impact

Researchers at the University of Cambridge report that most Bitcoin mining occurs in the U.S., China, and Kazakhstan. According to the Center for Strategic and International Studies, about 76% of the energy consumed in China is generated from coal and crude oil. China's percent of the global hash rate is 21%.

About 38% of mining takes place in the U.S. The U.S. gets most of its electricity by burning fossil fuels, per 2019 data from the EIA. Kazakhstan accounts for 13% of the world's Bitcoin mining and mainly uses fossil fuels.

As a result, three countries heavily dependent on fossil fuels are responsible for around 72% of the world's Bitcoin mining.

Electronic Waste

Cryptocurrency mining also generates significant electronic waste, as mining hardware quickly becomes obsolete. This is especially true for Application-Specific Integrated Circuit (ASIC) miners, which are specialized machines designed for mining the most popular cryptocurrencies. According to Digiconomist, the Bitcoin network generates approximately 38 thousand tons of electronic waste annually.

Could Cryptocurrency Mining Use Less Energy?

Large-scale cryptocurrency miners are often located where energy is abundant, reliable, and cheap. But processing cryptocurrency transactions and minting new coins does not need to be energy-intensive.

The proof-of-stake (PoS) method of validating cryptocurrency transactions and minting new coins is an alternative to cryptocurrency mining that does not use extensive computing power. The authority to validate transactions and operate the crypto network is instead granted based on the amount of cryptocurrency that a validator has "staked" or agreed not to trade or sell.

Other methods of validation, such as proof of history, proof of elapsed time, proof of burn, and proof of capacity, are also being developed. While Ethereum's developers have retired the blockchain's proof-of-work mechanism-with estimates calling for a 99.9% reduction in carbon emissions-there is no such objective in the Bitcoin community. Since Bitcoin is the most popular crypto, it means that mining, along with its enormous energy costs, is likely here to stay.

Is Cryptocurrency Environmentally Friendly?

Some cryptocurrencies have intense energy requirements, special equipment needs and generate lots of waste. In that sense, some are not environmentally friendly; However, it's important to remember the environmental costs of gathering natural resources and expending energy and electricity to make and maintain fiat currency and our current banking system.

Can Bitcoin Become Environmentally Friendly?

In short, because the validation process is energy-intensive, competitive, and rewards-based, it is unlikely that Bitcoin will reduce its energy footprint. Even after the last bitcoin is rewarded, the network will still require large amounts of electricity to validate transactions.

How Much of Crypto is Renewable?

There is currently not enough official information available to determine how much of the energy consumed by cryptocurrencies is from renewable sources.

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

# data[].attributes.attachment_link.title
What's the Environmental Impact of Cryptocurrency?

# data[].attributes.attachment_link.description
Cryptocurrency mining requires massive amounts of energy. Discover why cryptocurrency mining is so energy-intensive and learn about alternatives to crypto mining.