3. Impact of the credit crisis of 20082009 on bank valuations

Evaluate the following statement.

In 2008, the decline in housing prices and an increased rate of defaults on mortgages increased the cash flows generated by mortgage-related securities and increased the market valuation of the mortgages and mortgage-backed securities held by banks.

True

False

In addition to the decline in housing prices, which factors have influenced bank valuations? Check all that apply.

Reduction of the demand for loans by qualified borrowers

Higher-risk premiums required by investors in commercial banks

An increase in demand for loans by subprime borrowers

An increased number of investors in commercial banks

Lower-risk premiums required by investors in commercial banks