Question

The 2008 credit crunch occurred when banks reduced lending in response toa the loss of asset value for mortgage-backed securities and mortgage loans.b having too little capital to satisfy capital requirements.c an excess of bank capital.d an increase in the required reserve ratio.

Answer 1

The correct answer is option a.

Step-by-step explanation:

In 2007-2009 financial crisis occurred globally which originated in the US. It was triggered in the US because of the collapse of the housing bubble which caused the price of houses to decline.

The housing bubble was backed by mortgages securities. The percentage of lower quality or subprime mortgages increase around 2004-06.

This reduction in the asset value for mortgage securities caused the banks to reduce their lending as the debts on consumers and businesses were increasing.

This caused the credit crunch in the year 2008.