Question

1. What challenges did the banking system face with its asset side of its balance sheet during the 2007-9 housing crisis? What were the contributing factors to the qualitative change in assets? What types of assistance might the Central Bank provide during a crisis to avert bank insolvency? How does this work?

Answer 1

Banking systems faced large scake shortvterm lending on asset side as the gross net performance assets grew enormously because borrowers failed to repay back loans and thus led to defaults and banks ultimately collapsed die to an asset liability mismatch.

Contributing factors were relentless lending with poor underwriting methods and no backgrounds checks whatsoever and lack of corporate governance due to subprime mortgage products.

Central banks usually provide bailout and relief packages to alleviate stress and avert insolvency and also indulge in lowering CRR and SLR rates and bond buying programmes as part of quantitative easing during crisis and recessions.

PLEASE UPVOTE INCASE YOU LIKED THE ANSWER WILL BE ENCOURAGING FOR US THANKYOU VERY MUCH ALL THE BEST IN FUTURE