Financial Crisis Impact On Institutions And Markets

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Financial Crisis Impact on Institutions and Markets The financial crisis, beginning in 2007, negatively impacted the stability of financial institutions and markets across the world. While there are many speculative causes of the financial crisis, dealings in subprime mortgages are considered the biggest culprit. As a result, those involved in subprime mortgages, such as lenders, investment banks, credit rating agencies and securities investors were among the first to feel the crisis’ ramifications. Moreover, adjustments made to lending stipulations and interest rates produced a housing bubble within the United States priming the market for an inevitable collapse. Once the housing bubble burst, the risk associated with subprime…show more content…
government has instilled greater regulations, in an effort to prevent a crisis of this magnitude from happening again. Cause of the Financial Crisis The new millennium of the early 2000’s, brought forth a multitude of factors initiated by the financial industry and the United State government which unknowingly primed the economy for failure. In an effort to stimulate the economy and boost consumer spending, the United States Federal Reserve lowered interest rates to one percent after the dot-com bubble in 2000 and the September 11th terrorist attacks of 2001. In return, the value of real estate improved drastically, motivating home owners to refinance their loans, and potential owners to seek out loan approval. As banks began dealing with increased loan demand, they sought to lower loan qualification standards to meet the demand, helping banking institutions to supply loans to the masses (Li & Li, 2012). Through reduced loan qualification standards and with an extended effort to maintain low credit standards, mortgage issuers substantially reduced the need for borrower down payments and viable income documentation (Tiller, 2009). Consequently, unbeknownst to corporations involved, the uprising of subprime mortgages had initiated Subprime mortgages Once loan qualification standards decreased the issuance of subprime mortgage loans spread throughout the country. Subprime mortgages are defined by Funk & Wagnall’s
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