What is a Plunge Team?

Vasanth S.
Vasanth S.
A plunge team aims to prevent extreme losses in the stock market.
A plunge team aims to prevent extreme losses in the stock market.

A plunge team is a group of economic leaders that maintain confidence in the economy during times of financial trouble. The prime example was established in the United States in 1988 by executive order in response to Black Monday, which was a stock market crash that occurred on October 19, 1987. The goal of this plunge team was to prevent or reduce extreme losses in the stock market by informing congress and companies of the status of the financial markets.

Historically, the plunge team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission, and the Chairman of the Commodity Futures Trading Commission. Together, these four individuals give recommendations that are designed to increase the number of people that invest in the stock market. They also improve the competitiveness of the financial markets.

Generally, the plunge protection team was established to prevent what occurred on Black Monday: a 508 point drop in the Dow Jones industrial average. The market crash started in Hong Kong, spread through Europe, and then occurred in the United States. By the end of October in 1987, the stock market in the United States had fallen close to 23 percent.

President Ronald Regan created the original plunge team on March 18, 1988 with Executive Order 12631. Officially, the team is called the Working Group on Financial Markets. Unofficially, the group is called the Plunge Protection Team. This name comes from the title of a Washington Post article published in February 1997.

The plunge protection team meets to discuss unnerving trends in the financial market. They consider what is happening in foreign markets, and how it will affect the United States. The group considers the risks and potential benefits of implementing new financial policies. Also, they consult with the President on immediate issues such as closing the stock market.

Usually, the trends which alert the plunge protection team include new highs in the stock market and the subsequent drops. Unsustainable growth is a big concern, and the expected market correction may cause a plunge team to intervene in the financial market. The plunge protection team also assesses the impact on the overall financial system if a large company should go bankrupt.

When action is needed, the heads of central banks, financial regulators, and others communicate with the plunge protection team. They keep markets running in spite of large drops in stock prices. They also work to discourage individuals from taking money out of banks, brokerage firms, or mutual funds.

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    • A plunge team aims to prevent extreme losses in the stock market.
      By: Scanrail
      A plunge team aims to prevent extreme losses in the stock market.