The mounting losses from securities backed by subprime mortgages led investors to lose confidence in structured finance products more generally – investors apparently had relied heavily on credit-rating firms to determine the quality of these often-complex instruments rather than perform their own independent evaluations.
But in certain segments, markets have remained fragmented along national lines – not least retail banking. This is a politically sensitive sector, due to concerns about consumer protection and the financing of small businesses. But when retail banking markets are fragmented, governments are more likely to resort to “national solutions” in the face of a financial crisis – possibly in an uncoordinated fashion.