Explain how the U.S. mortgage crisis/housing collapse was able to affect non-US banks.

Correct Answer:

The U.S. mortgage crisis affected non-US banks because many foreign banks had invested in U.S. mortgages, mortgage-backed securities, and other related financial products. When U.S. home prices fell and borrowers defaulted, the value of those assets dropped sharply. Because global banks are connected through international lending and investment markets, losses spread beyond the United States. This reduced bank capital, tightened credit, and hurt confidence in financial institutions around the world.