In this stage, delinquency rates of not only subprime-related products but also commercial real estate loans and consumer loans have been rising reflecting the sluggishness in the U.S. economy. As a result, a situation in which the sluggishness in the economy causes financial institutions' asset quality to deteriorate further – with further adverse impact on the economy – is becoming a focus of concern.
To put it another way, at the third stage there are concerns about a negative feedback loop between financial markets, asset prices, and economic activity. U.S. economic growth is likely to remain sluggish for some time, since it is unforeseeable at present when and how the negative feedback loop will diminish. In Europe, economic growth is slowing further.