Why did banks withdraw all loans and stop all borrowing/lending activity in 2007?

Question

a. Banks needed to make sure they could keep lending to those who really needed it, like small business

b. Banks balance sheets were reduced when the value of their portfolio fell drastically with the value of these derivatives and mortgage backed investments. They needed to cover their obligations of reserve requirements and if they leant to other banks, they might not get their money back if the bank went under.

c. Banks were hording cash because they knew the value of the securities was likely to rise in the near future

d. Banks were afraid that the economy was becoming overstimulated and inflation was increasing, especially in the housing market.

My reasoning landed on either c or d.

Answer 1

Answer is b)

I can explain it in a session as that's a long explanation.