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Q&A: Bear Stearns banking crisis

US investment bank Bear Stearns, America's fifth-largest bank, has been sold to rival JP Morgan Chase at a knockdown price of $2 a share, valuing it at $236m (£117m). Last week it was worth $140bn

How did Bear Stearns, founded in 1923, get into this state?

It specialised in credit products such as mortgage-backed securities that left it heavily exposed to American sub-prime home loans. It has less capital than rivals like Citigroup and Merrill Lynch, which have also been heavily exposed to the crisis, to make up the shortfall

Why did JP Morgan want to buy Bear Stearns?

JP Morgan is taking advantage of the current crisis to expand its operations. And it is doing so at little risk to itself -- the US Federal Reserve is backing the deal with $30bn of special financing to fund Bear Stearns' less liquid assets. It is the first time the central bank has bailed out a brokerage firm since the 1920s

banks find it harder to raise money

they will charge higher rates