Research On The Contagion Mechanism Of The U.S. Subprime Mortgage Crisis-Based On The Balance Sheet Approach

The paper based on profiling background and evolution and of the U.S. subprimemortgage crisis, using the balance sheet approach reveals how subprime mortgage crisisdevelops into a global financial crisis, analyzes how the crisis originates from the specialsector which is financial institutions contagions to the real economy, and through thebalance sheet of multinational financial institutions spreads to other countries of theworld.This paper firstly summarizes the connotation and main features of the balance sheetapproach, and reveals the variety characteristics of the financial institutions balance sheetaround the subprime mortgage crisis, and then briefly summarizes the transmissionmechanism of the balance sheet; After that, based on the theoretical view analyzes howthe crisis spreads to the real economy through financial institutions’ balance sheet, and letthe U.S. subprime mortgage crisis breaks out around the whole country and evolves intoa systemic financial crisis, and eventually spreads to other countries by the channel offinancial institution’s balance sheet; Then on the basis of theoretical analysis, using dataand chart explain how the subprime mortgage crisis contagions through the sectors’ andcountries’ balance sheets, mainly from U.S. to the European region, for example. Finally,based on the perspective of the balance sheet make recommendations accordingly on theprevention and control of the financial crisis.The innovation of this issue mainly focuses on three aspects: firstly it makes theclear definition of the balance sheet approach. Different from the accounting sense of thebalance sheet, the proposed balance sheet approach is integrated into the financialconcept, it’s by means of the elements and principles of the balance sheet to reflect thefinancial crisis generation, transmission, and amplification mechanism. Secondly, mostof the past literature on the financial crisis is on the view of the macro level-the nationalcontagion, this issue is based on the micro perspective, looks at the various of thenational and departments’ balance sheet before and after the crisis, explores how thecrisis contagions between the departments within the national in order to making upblank. Finally, the previous article is mostly based on the theoretical research and empirical analysis, this paper based on the theory, using a lot of data and charts explainshow the crisis contagions between the departments and countries through the balancesheets’ channel.