As it sold on many of its debts to other banks, the collapse in the sub-prime market begins to have an impact at banks around the world.July Investment bank Bear Stearns tells investors they will get little, if any, of the money invested in two of its hedge funds after rival banks refuse to help it bail them out.While bank shares have been hammered because of bad debts, retailers have been hit as consumer confidence is shaken by falling house prices and job insecurity.Between 20 US interest rates rose from 1% to 5.35%, triggering a slowdown in the US housing market. Two years ago, few people had heard of the term credit crunch, but the phrase has now entered dictionaries.Defined as "a severe shortage of money or credit", the start of the phenomenon has been pinpointed as 9 August 2007 when bad news from French bank BNP Paribas triggered sharp rise in the cost of credit, and made the financial world realise how serious the situation was.Governments move to nationalise banks from Iceland to France.Central banks in the US, Canada and some parts of Europe take the unprecedented step of co-ordinating a half-point percent cut in interest rates in an effort to ease the crisis.
The European Central Bank pumps 95bn euros (£63bn) into the banking market to try to improve liquidity .
Losses are felt by investment banks as far afield as Australia.
Firms cancel sales of bonds worth billions of dollars, citing market conditions.
Homeowners, many of whom could only barely afford their mortgage payments when interest rates were low, began to default on their mortgages.
Default rates on sub-prime loans - high risk loans to clients with poor or no credit histories - rose to record levels.