Question

name the primary regulation/ legislation that was passed in response to the 2008 crisis and briefly discuss its impact and what primary change it brought about in baking?

a. Gramm, Leach & Biley/ overturned glass - steagall

b. Federal reserve act/ created the federal reserve

c. Dodd- Frank / increases capital requirements

d. TARP/ Decreased loan standards

e. Sarbanes Oxley/ Stricter accounting standards

Answer 1

Primary regulation/ legislation that was passed in response to the 2008 crisis: Post 2008 crisis Federal Government has passed several laws in respose to the crisis, from the options given in the above question, TARP / Decreased loan standard is one of the act paased by Federal Government.

About TARP: Troubled Asset Relief Program is launched by US government to buy toxic assets and equities post financial crisis from financial institution to provide liquidity to them. Initially it authorized expenditures of $700bn. The EESA(emergency economic stabilization act) of 2008 has created this law.

Purpose of this law was to purchase of troubled assets of $700bn from financial institutions. It allowed treasury to purchases illiquid assets, assets that can be difficult to be valued. The assets that are to be purchased can be Collateralized Debt Obligations(CDO) which were sold until 2007.

Impact and Change: Total bailouts post global crisis was outflows of $633.6bn and inflows of $754.8bn thus making net profit of  $121bn.

Out of 38.7% of outflows went to banks and other FIs, 30.2% to Fannie Mae and Freddie Mac, 12.6% to Auto companies, and 10.7% to AIG, with the remaining 7.8% in other programs.

A survey conducted in US by Chicago Booth of Business revealed that unemployment at the end of 2010 would have been higher without the TARP program.

Hence, Option(d) is correct.