Author Question: During the 2009 euro crisis, a number of countries had private banks that had become too big to ... (Read 48 times)

c0205847 · **on:** Jun 30, 2018

During the 2009 euro crisis, a number of countries had private banks that had become too big to save. Explain.

What will be an ideal response?

Question 2

What behavior by central and private banks in euro zone countries created the conditions for the 2009 euro crisis?

What will be an ideal response?

bobsmith · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A private bank is too big to save if the resources available to the home government through the central bank are insufficient to prevent bank failure. Essentially, saving the private bank would lead to a sovereign default by a countries government and so was not feasible.

Answer to Question 2

Assets were accumulated by the banks through the purchase of US financial products and through lending to other euro zone countries. Easy credit led to a European housing boom. Following the global financial crisis and the consequent recession, some European countries such as Greece Ireland Portugal Italy and Spain were found to have unsustainable levels of debt relative to national GDP. This raised the specter of a sovereign default by one or more euro zone countries and the crisis was on.