Question

Based on the functions of the banking system, give reasons why governments bail out banks during an economic crisis.

Answer 1

Government bailout banks means providing necessary support to the banks which has a chance of going into bankruptcy during the crisis. Government bailout banks due to following reasons:

1. To safeguard the interest of the stakeholders in these banks as they might have a major portion of their funds invested in these banks.
2. Injecting money into these banks will lead to growth of the economy.
3. To protect the interest of depositors and assuring there money in safe hand.
4. Proper circulation of money in the market.
5. To uplift these banks from the subprime mortgage crisis and giving them hope of curbing the scenario of bankruptcy.
6. For sustainable economic growth, government give necessary support to the banks.