Presented By, Bulbul Sharma
Presentation Scheme
Meaning of Subprime Crisis
Subprime Lending versus Prime Lending
Road to Subprime Crisis
Effects of Subprime Crisis
Conclusion
What is Subprime Crisis? “Borrower fails to repay his/her Subprime loans”
Prime Lending Versus Subprime Lending
Issued to household with highly rated credit histories.
Low interest rate
Called "A-paper" credits.
Issued to households with low incomes and assets, and with troubled credit histories.
High Interest rate
Called “B-paper” credits
Road to Subprime Crisis… National Partners in Home Ownership,1994
Write off as Bed Debts
Fall in Interest rate
Fails to pay
Rise in house price
More Subprime lending
Reduce in demand and Fall in House’s price
Increase in Interest Rate
Effects of Subprime Crisis
On Banking Industry In
2008 the loss is estimated like 280 billion US Dollars.
For example: UBS AG Bank has suffered $37.7 billion, Citibank – $39.1 billion.
Contd..
Real Estate
At the end of 2007 home prices had fallen approximately 8% from their peak in 2006.
Construction of houses dropped in the same period
Contd…
Risk Preferences Structured
assets of all ratings grades are being shunned in favor of simpler cash securities.
For
Example: Bear, Stearns collapse
Conclusion “Currently
new regulations is the best way to deal with the system, preventing banks to have risky operations will decrease the chance of having crisis in the future. FED should also extend its powers.”