Government Intervention (Bailout) Term Paper Example | Topics and Well Written Essays - 1250 words

Government Intervention (Bailout) - Term Paper Example harmonise to Nelson (2008), one of the main reasons that made investment banks undergo this transformation is disquietude. Panic is often the indirect resolving power of any monetary crisis, and banks have their own usual set of standard reactions in any financial crisis or recession. Since many financial companies, some of which were considered market leaders like Lehman Brothers have collapsed, there is holy terror among the remaining investment banks. The collapse of large banking industries puts pressure and fear in the banking world. Some of them the remaining banks be financially stable, but due to the fact that the financial market is unpredictable, they seek to consolidate their position by transformation to bank retention companies. Therefore, even though they have financial security, their own feelings of fear are dictating their responses to the market. Transformation to holding companies go out enable the com panies to have access to large deposits, which is considered to be a livelihood method that is more stable. Therefore, panic is one of the leading factors in the bank reactions to the economy and the United States disposals bailout plan. Other issues are also affecting the banking response in the United States. According to Plantin (2007), some other reason for the modification to holding banks is that the investment banks have realized that the model that propelled them to their success does not score anymore, as evidenced by the mortgage crisis, which necessitates a change in strategy. Changing up tenseness and goals can often be difficult for banks, since they are such large financial institutions, and therefore parkway and change can be not only difficult, but frightening. The investment banks have realized that unlike them, commercial banks can mitigate risks through use of deposits from mortgages and savings accounts that are held by customers. This is in business lin e to their operations which use majority of financing from other banks, and this is prone to uncertainty, since such transactions can be recalled at any time, sometimes using mere telephone calls. Such investment banks have seen it play to change their nature of operations and venture into commercial banking business that poses lesser risks. So a change of strategy is imminent, although usually slow in large financial institutions, and also quite stressful, only adding to the panic that banks are currently feeling. There is still one more aspect left to consider as far as the banks are concerned. Another major reason that has made investment banks convert to holding banks is to place them in a better position to benefit from various initiatives introduced by the Federal governing body to support institutions in the US financial sector. This is a response to the Bailout and will hopefully see banks mitigate their economic situation during this crisis. There are several benefits of shift to bank holding companies that need to be addressed in order to create a better understanding of the bailout concept. The access to large deposits will enable the companies to increase the effectiveness of their operations throughout the globe. In fact, some experts say that American show stands to gain by as much as $3.8 billion. American Express application was approved a month after applying for it (Sloan, 2008). This is due to the reason that while they were investment banks, they only had