During the credit crisis, governments interfered when banks were not stable any more which could therefore bring the entire financial sector in a country into danger. The question is however, should governments really interfere in banks that are in problems? Many people believe that banks are the same as any other company. But however, the government is only helping banks to ‘’stay alive’’ but other companies that may also face bankruptcy are not being helped. But of course there is one main reason for this. If a bank would ‘’fall’’ then many people would be dragged into the ‘fall’’ as well. Many people will lose their savings and pensions which could lead to the bankruptcy of many people as well. They cannot afford the rental prices of their houses any more or they cannot pay the study of their child’s no longer. Which in the end has a chain effect. If someone could not pay the prices of their houses any more, also estate agents will have less clients, prices of houses will drop, et cetera. So when a bank is bankrupt, thousands of people will be affected. This is of course different with other companies. Of course, also here, many people will feel the problem but it wont be as much as when a bank goes bankrupt.
The European Union has decided in a corporative approach of problems with banks in Europe. It was agreed that countries provide capital to financial institutions for the stability of the financial system and guarantees on bank loans for the financing of financial institutions. In order to strengthen confidence and to prevent people losing their savings, the guarantee on deposits is temporarily raised to at least 50,000 Euros.
With those temporary capitals to Financial institutions, the government is giving a buffer with which a bank can survive the current situation of a crisis better. Governments are giving confidence to the entire financial situation of a country to guarantee its institutions or to recover their problems. The confidence is necessary because if consumers lose confidence in a bank, there is a chance that they retrieve their money from the bank and place it somewhere else. This could get a bank in even more financial problems. To withstand this process, governments can decide to guarantee the savings of consumers. Then, they would have more confidence in the bank and they do not move their money to somewhere else.
So, government interference in the credit crisis is positive. They bring stability to the economy to help banks that are in problems in order to regain the high level of economics a country had before the financial crisis.
