Fed Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves in trouble by taking on too much risk.Why did the Fed do it?
A) Rescuing floundering banks is part of the Fed's mandate as set forth in the Federal Reserve Act of 1913.
B) The Fed bailed out some institutions to curry political favor.
C) Powerful members of Congress forced the Fed to bail out constituents in their districts.
D) The Fed feared that failures of very large institutions threatened the stability of the entire financial system.

Question

Quizplus · Accepted Answer

The correct answer is D. The Fed feared that failures of large institutions could lead to widespread panic and threaten the stability of the entire financial system. The Fed believed that it had no choice but to intervene and prevent the collapse of these institutions, even if it meant going against its principles and bailing out institutions that had taken on excessive risk.

Fed Chairman Ben Bernanke Was Not Happy About Bailing Out