As the 2008-2009 Financial Crisis Unfolded, One Major U

question 5

Essay

As the 2008-2009 financial crisis unfolded, one major U.S. bank had a leverage ratio of 50. In Canada regulators put a ceiling of 20 on bank leverage ratios. Compare the change in asset values that would push the capital in the U.S. bank to zero with the change required to eliminate capital in a Canadian bank at the ceiling-leverage ratio. What is the implication of the differences in maximum leverage ratios for the stability of the banking system?

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Definitions:

Local Variables

Local variables are variables declared within a function or block and can only be accessed and manipulated within that function or block.

Global Variables

Variables that are defined outside of any function or block, accessible by any part of the program.

Programming

The process of designing, writing, testing, debugging, and maintaining the source code of computer programs.

Scope

The region of a program where a defined variable or function is accessible.