Question

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

Answer 1

Government bailout banks means government is giving support to banks as these banks may goes into bankruptcy due to default in loan payment by customers. Government bailout banks due to following reasons:

1. To uplift the economy of a country due to financial crisis.
2. To safeguard the interest of stackeholders as their major portion of the investments are in these banks.
3. To save the banks from going into bankruptcy due to huge loss in subprime crisis.
4. Banks are the backbone of every country's economy. For it's smooth operation during the crisis, government bailout these banks.
5. Also to protect the interest of the depositors, government bailout these banks during the crisis.