During the 2007-2009 crisis, the burst of the housing bubble led many mortgage borrowers to return their houses as collateral, failing to pay back their loans. What would be the likely impact of this development on the banking system?

A.

Bad loans would be written off against bank capital, shrinking the size of bank balance sheets

B.

Bad loans would be sold to investment banks, decreasing the issuance of mortgage backed securities

C.

Bad loans would be sold to investment banks, increasing the issuance of mortgage backed securities

D.

Bad loans would be witten off against bank capital, increasing the size of bank balance sheets