The immediate cause of the crisis was the bursting of the United States housing bubble which reached its peak in approximately 2005–2006. High default rates on "subprime" and adjustable rate mortgages (ARM), began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to give out problematic loans in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity went up dramatically as easy initial terms expired, home prices failed to go up as expected, and ARM interest rates reset higher. While the housing and credit bubbles expanded, a series of factors brought about the financial system to both expand and become more and more fragile. Policymakers did not recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. Some experts believe these institutions had become as important as traditional depository banks in providing credit to the U.S. economy, but unfortunately they were not subject to the same regulations. These institutions as well as certain regulated banks had also assumed significant debt burdens while providing loans and did not have a financial cushion sufficient to absorb large loan losses. These losses impacted the ability of financial institutions to lend, slowing economic activity. Concerns regarding the stability of key financial institutions made central banks provide funds to encourage lending and restore faith in the commercial paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions and implemented economic stimulus programs, assuming significant additional financial commitments.