Supporting the Financial System
The crisis, which first erupted in the United States, quickly spread to Europe by strongly affecting large European financial institutions involved in financing the U.S. subprime boom. Moreover, idiosyncratic problems in some EU economies—such as excessive housing booms and the contagion to the countries that financed them—further deteriorated the situation. Chapter 1 highlights how financial institutions, and banks in particular, are responsible for critical functions of the economy such as the payments systems and the channeling of credit flows. Therefore, the first reaction of public authorities was to develop emergency measures to prevent the collapse of the financial system and to avoid contagion ...
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