Subprime Mortgage Crisis and its effects on Pakistans Banking Industry

Abstract

In the year 2008, many of the US banks failed and thus this made other banks to fail as well. Because of this, the financial market and the economy collapsed and it forced the local government to intervene. In this year there was a record number of bankruptcy filing in the US. This led to the decrease in lending by the banks and other financial institutions. This financial crises affected properties and real estate the most. During the 1990’s real estate prices were very high, and due to the lack of deregulation, many of the non deserving people were able to receive loans and properties. Many people used derivatives in combination with the real estate’s to minimize their risks. But the values of the properties did not rise, as it was expected. This made many banks to write off their loans which they had given to these incompetent borrowers. As a result many of the banks and financial institutions were forced into bankruptcy.