As the banks took over the securities, the ratios between their capital and their assets lurched down towards their regulatory minima. Central banks in the United States and Europe sought to alleviate the pressure on the banks with interest rate cuts
The financial crisis led to a significant shift as banks assumed control over securities, resulting in a decline in the ratios of their capital relative to assets, edging close to regulatory minimums. This alarming situation prompted central banks in both the U.S. and Europe to intervene in an attempt to stabilize the financial system.
In a bid to relieve the mounting pressure on banks, central banks implemented interest rate cuts. These measures were intended to enhance liquidity and support the banking sector during a turbulent economic period, highlighting the crucial role central banks play in managing financial crises.
