During the period from June 2007 to mid-May 2008, concerns over losses on US subprime mortgage loans escalated into widespread financial stress. What initially appeared to be a contained problem quickly spread across other credit segments and broader financial markets to the point where sizeable parts of the financial system became largely dysfunctional. Surging demand for liquidity, coupled with growing concerns about counterparty risk, led to unprecedented pressures in major interbank markets, while bond yields in advanced industrial economies tumbled as investors sought safe havens amid fears that economic growth would weaken. Equity markets in advanced industrial countries were also weak, with financial shares selling off particularly sharply. A brighter spot was emerging financial markets, which in contrast to previous episodes of broad-based asset market weakness proved to be more resilient than those in the advanced industrial economies.
The financial market turmoil unfolded in six stages, starting in mid-June 2007:
