Off-balance-sheet activities contributed to the 2008 global financial crisis with increasing financial market solvency risk exposure caused by:
A)loans sold with recourse had contingent liability implications for FIs when these loans went 'bad'
B)sub-prime mortgages and OBS securities backed by these mortgages peaked prior to the mortgage market collapse
C)the market for derivatives was opaque and 'trades' complex leading to counterparty risk where firms dealt directly with each other
D)All of the listed options are correct.

Question

Quizplus · Accepted Answer

All of the listed options contributed to the increasing financial market risk exposure and ultimately led to the 2008 global financial crisis. Loans sold with recourse meant that FIs were held liable for the repayment of the loan if the borrower defaulted, while sub-prime mortgages and OBS securities backed by these mortgages increased default risk. The market for derivatives was opaque, and the complexity of trades led to a significant counterparty risk where firms dealt directly with each other.

Off-Balance-Sheet Activities Contributed to the 2008 Global Financial Crisis with Increasing