Insolvency, banking and finance: Banking on stability
The unfolding of the US sub-prime crisis has caused substantial damage in the global capital markets. Widespread debt downgrades have created huge losses in the value and liquidity of securitised debt backed by sub-prime residential mortgage loans. Much of this debt was held by major US banks, resulting in their multibillion-dollar write-downs in the third and fourth quarters of 2007. Until recently, the extent of the global damage was questioned as many European banks resisted following the lead of US banks in writing down their sub-prime exposure. However, the massive wave of write-downs announced in recent weeks by several prominent European banks highlights the global nature of this problem. In fact, Swiss financial giant UBS has recently revealed sub-prime-related write-downs of £9.3bn, second only to the sub-prime write-downs of US behemoth Citi.
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