Bear Stearns’ Liquidity Crisis Response During the Subprime Mortgage Crisis - Financial Leverage and Risk Management

Ziyang Wang ()
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Ziyang Wang: Bishop Montgomery High School

A chapter in Proceedings of the 2025 International Conference on Hybrid Commerce, Human Capital, and Economic Dynamics (ICHCH 2025), 2026, pp 654-659 from Springer

Abstract: Abstract The global financial crisis erupted in 2008, and the subprime mortgage crisis quickly engulfed financial markets, triggering profound systemic risks. Bear Stearns, then the fifth-largest investment bank in the United States, ultimately fell into a severe liquidity crisis due to its overreliance on financial leverage and serious deficiencies in its internal risk management mechanisms. This article uses Bear Stearns as a case study, focusing on the causes of the crisis and its response, particularly exploring the role of leverage structure and risk management throughout its evolution. Combining case analysis with quantitative data interpretation, this study reconstructs Bear Stearns’s asset-liability structure, leverage ratio fluctuations, and financing arrangements from 2005 to 2008. Furthermore, it employs event study methodology to assess market sentiment and compares the response strategies of other investment banks during the same period. The study finds that Bear Stearns’s heavy reliance on short-term financing and aggressive investment in mortgage-backed securities significantly weakened its resilience to market turmoil. Despite various emergency measures implemented after the crisis, Bear Stearns was unable to reverse the collapse of market confidence. This article ultimately emphasizes that, in the context of highly leveraged operations, financial institutions must attach particular importance to the regular development of liquidity buffer mechanisms and stress testing, and strengthen the institutional implementation of contingency funding plans, providing theoretical support and practical insights for the sound operation of the financial system.

Keywords: Bear Stearns; Subprime Mortgage Crisis; Leverage Ratio (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-2-38476-585-0_74

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DOI: 10.2991/978-2-38476-585-0_74

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