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

DOI

10.2991/978-2-38476-585-0_74How to use a DOI?

Keywords

Bear Stearns; Subprime Mortgage Crisis; Leverage Ratio

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.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Download article (PDF)

TY  - CONF
AU  - Ziyang Wang
PY  - 2026
DA  - 2026/06/18
TI  - Bear Stearns’ Liquidity Crisis Response During the Subprime Mortgage Crisis - Financial Leverage and Risk Management
BT  - Proceedings of the 2025 International Conference on Hybrid Commerce, Human Capital, and Economic Dynamics (ICHCH 2025)
PB  - Atlantis Press
SP  - 654
EP  - 659
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-2-38476-585-0_74
DO  - 10.2991/978-2-38476-585-0_74
ID  - Wang2026
ER  -