Research on the Role of Banks during the Global Financial Crisis

Abstract

The purpose of this paper is going to the role of banking during in the recession. After the Nobel prize in Economic Sciences 2022 was presented, it makes people rethink the role of banks. Therefore, this paper picks up the 2008 financial crisis as an example to show it. Initially, the background of the 2008 financial crisis in treating the economy bounce back is mentioned. Deregulation and Fed’s monetary policy to decrease the interest rate are analyzed. After the period of stimulating the economy, the economic developed fast. Meanwhile, real estate market reaches saturation. In order to make profits, the banking launched sub-prime loans and CDO and CDS derived from sub-prime loans. Further economic stimulus comes with a growing property bubble, as the change in the adjusting exchange rates, Subprime defaults increase, the subprime mortgage crisis and the 2008 financial crisis are born. 2008 financial crisis was resulted in the housing bubble explodes, investment banking bankruptcy and rapid increase in unemployment rate, even Influence the worldwide. To deal with the financial crisis, Dodd-Frank Act was published, Basel III and government increasing the spending and banking decline interest near to zero. The main cause of the 2008 financial crisis was the neglect of regulators and the failure of banks to consider the risks posed by unqualified lenders, therefore, studying in 2008 financial crisis is important.