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The effect of the U.S. Subprime Crisis to the China commercial banks in 2008-2013 - Dissertation Example
Author : brandyn16
Finance & Accounting
Pages 42 (10542 words)
The sub-prime mortgage crisis that originated in the United States of America basically started from August 2007 and had transformed the financial markets around the world. A careful analysis of the sub-prime crisis reveals that it was created from the slump in housing prices that created a ‘bubble’ of expectations among investors…
A careful analysis of the sub-prime crisis reveals that it was created from the slump in housing prices that created a ‘bubble’ of expectations among investors. By the end of third quarter of 2007, the prices of underlying assets declined drastically and the value of mortgage based securities was higher than asset. This motivated investors to default on mortgages as they felt that actual worth of asset is not worth repayment. The depressing effect was amplified further by securitization of assets. The impact of sub-prime crisis was not limited to US banks but almost all commercial banks and financial institutions around the world that had considerable exposure in US Mortgage Backed Securities (MBS) were either affected directly or indirectly from the subprime crisis. In order to rescue the financial market, the US Federal Reserve responded swiftly through cutting key monetary policy interest rates and also extended financial support to mortgage lenders and house buyers who were defaulted or would seemingly default. ...