Question

Briefly describe three things the government did in response to the failure of several large financial institutions in 2008

Answer 1

The recession and financial crisis of 2008 was the biggest since the great depression of 1929 America had ever seen. This lead to failure of several large financial institutions. Below are the 3 things the government do to stabilize the scenario.

1. Dodd-Frank Wall Street Reform & Consumer Protection Act.: US govt modernized the regulatory framework and protected the consumers against the financial risks. This was done by President Obama using DFWSRCP Act. Americans now had a specialized consumer protection system, giving rise to more transparent market. The govt can now take necessary actions against firms who can affect the whole financial system to a larger extent.

2. Loaning the banks using asset-based commercial papers: The crisis led to severe bank runs as the consumers and investors wanted their money back. To maintain liquidity in the entire financial system, the federal bank announced that US banks can fetch funds using Asset-based commercial papers (ABCP) under Federal Reserve discount window.

3. Lowering of interest rates by the federal bank was a relief for all the bankers in the midst of crisis.