The term Bernanke put has become almost as ubiquitous as the Greenspan put was during the lates and s.

Derived from the concept of a put option, these terms refer to central bank policies that encourage risk-taking and force equities higher. For instance, Alan Greenspan was known for lowering the Fed Funds rate whenever the stock market dropped below a certain value, which resulted in a negative yield and encouraged movement into equities. In these situations, investors have been given a put option of sorts by central banks , since they have a price floor in place.

Central banks have a number of different tools at their disposal designed to influence interest rates and thereby impact asset prices. Since the economic crisis , this toolset has expanded to include options designed to directly influence asset prices.

The "Bernanke Put" | Seeking Alpha

For example, the U. Federal Reserve began directly purchasing mortgages and Treasuries during the economic downturn to boost the prices and liquidity of these assets during times of trouble.

Central banks have historically been tasked with controlling inflation by influencing interest rates via open market operations.

But lately, many central banks have expanded their mandates to focus instead of economic growth, employment, and financial stability.

The result since the economic crisis has been chronically low-interest rates designed to stimulate economic growth and improve employment rates within many countries around the world.

Bernanke put financial definition of Bernanke put

The problem is that these mandates may conflict with each other at times. For example, low-interest rates have caused a debt bubble in many countries, since companies and consumers are encouraged to take on more debt.

Greenspan Put

Central bank puts can also become a moral hazard since market participants will take on greater risks knowing the banks will incur the associated costs. And ultimately, these problems can cause instability within a marketplace.

Forget the ‘Greenspan Put’; Fear the ‘Yellen Call’ - WSJ

The aftermath of the global economic crisis has also led to concerns about the limits of monetary policies' impact on equities.

With long periods of low-interest rates and bond-buying programs in place, there may be fewer measures available to central banks to stimulate the economy and provide a boost to equity prices.

Search the site GO. International Investing Getting Started Global Market Basics Foreign Currencies Global Investments International Stock. Updated October 18, These actions were popular with Alan Greenspan and Ben Bernanke, but more recently, they seem to have become less reliable.

Monetary policy itself has also been shown to have a diminishing impact on equities, while the idea of a central bank put could create a moral hazard. Get Daily Money Tips to Your Inbox Email Address Sign Up.

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