What government measures can we expect in a banking crisis?

Oct 24, 2023 | Co-Creation Circles, Core, Impact Finance, Impact Investor, QP Blog

What government measures can we expect in a banking crisis?

During the previous banking crisis the government implemented some measures to lessen its negative effect on the economy. Can we expect similar government measures in a future banking crisis and will these be effective? Let’s have a look at the past and learn some lessons for the future.




1. Financial institution bailouts


The government injected capital into struggling banks to stabilize their position and prevent their collapse. This action was crucial in averting a catastrophe.


2. Acquisition of assets


The government purchased assets like mortgage backed securities from banks in order to remove them from their balance sheets and restore confidence in the financial system.


3. Guarantees and protection


The government provided guarantees on bank debt and deposits ensuring that people’s money was secure and the banking sector was stabilized. This measure effectively prevented bank runs and reinstated trust in the banking system.


4. Reduction of interest rates


Central banks lowered interest rates to encourage borrowing and spending. By making borrowing more affordable, businesses and consumers were incentivized to invest and spend thereby boosting activity.


5. Enhanced regulation and oversight


Governments introduced regulations and oversight measures on the sector to prevent future crises. They implemented initiatives such as stress tests, increased capital requirements and improved risk management practices, with the aim of reducing the likelihood of crises occurring again.




The government injected capital into struggling banks to stabilize their position and prevent their collapse. This action was crucial in averting a catastrophe

It is important to note that these interventions achieved varying degrees of success in restoring stability.

Government measures in the US

In nations, like the United States the efforts made to prevent a collapse of the financial system and restore stability were mostly successful. The Troubled Asset Relief Program (TARP) and the actions taken by the Federal Reserve played a role in stabilizing the banking sector and avoiding a severe recession.

Government measures in the EU

But European nations faced challenges in restoring stability. This is particularly due to their interconnected banking systems and issues with sovereign debt. The effectiveness of measures also depended on how severe the crisis was and how quickly they were implemented.

Take your own measures

In general while these government measures were crucial in preventing a catastrophe, there is ongoing debate regarding their long term success in restoring financial stability and averting future crises. The banking crisis highlighted the importance of maintaining vigilance implementing regulations and introducing reforms, within the sector to ensure global economic resilience.

Remembering the Cyprus banking crisis in 2013, it is of the utmost importance to apply risk management and spread risks in your Impact Investment strategies. Check out the Win-win-win Impact Lending formule as an alternative product for your Impact Investment Portfolio.




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