The effect of the U.S. Subprime Crisis to the China commercial banks in 2008-2013 - Dissertation Example

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.

The objective of the study is to reveal the effect of the U.S. Subprime Crisis to the China commercial banks in 2008-2013. In order to achieve objective the study covers the literature review and theoretical framework of the topic. Research design has been done with the intention of selecting appropriate methodology and data collection analysis. Moreover the data analysis will help to get the findings of the project. After interpreting the research findings, finally the study ends with conclusion, recommendations and reflections.

Background of the Study Freddie Mac and Fannie Mae was together accountable for almost half of the mortgage market in US which is valued to be worth over US$ 10 trillion. The many previous studies have also found that the government of China is among the top five international holders of Fannie Mae and Freddie Mac long-term debt. The Bank of China announced that it had Freddie and Fannie bonds worth $7.5 billion at the end of August 2008 after cutting its holdings by 25 percent. The country’s largest commercial lender, ICBC stated that at the end of August 2008 it held bonds in Freddie and Fannie debt worth $465 million in addition to $2.

2 billion in mortgage backed securities issued by the US companies. The second largest