The Financial Crisis Of The Subprime Mortgage Crisis

2261 Words10 Pages
“The ongoing economic and financial turmoil that started in 2007 has again put financial institutions at the centre of harsh debate and massive critism,……banks had gradually relaxed their screening and monitoring standards before the crisis, especially in the US subprime mortgage market. Then, they sharply curtailed new credit and forced firms to reduce their investments, hence propagating the financial crisis to the real economy,” (J.Godlewski, 2013, p1).

The financial crisis which has been mentioned is the financial crisis occurred in 2008. Majority of consumers, companies and banks have overestimated the income prospects so that excessive amount of mortgages have been agreed by banks without effectively considering potential risk. It is claimed that lost incentives to the risk and lacked the effective risk management on the subprime mortgage loan in US partly initiated the financial crisis. Since global economics closely integrated that serious economic and financial crisis spread to European as well. (Moro, 2013)

Considerable loss can also be reflected from different groups of people. Shareholders are proved to be the most seriously affected people. They suffered from losing majority or even all of the equity capital in the failed banks. “Equity capital is the part of the share capital of a company owned by ordinary shareholders,” (Reverso, 2014). Depositors’ bank account reduced while creditors of the banks cannot get their money bake either. Furthermore, borrowers
Get Access