Consequently, the liquidity problem transformed into a solvency problem leading to bank failures in the US and other advanced economies in Europe. The attendant wealth loss on account of collapsing asset prices further accentuated the problem in the real sector.
6  BIS Review 15/2010  Transmission to EMEs The crisis spread to the EMEs through all the three broad channels – confidence, finance and trade – reflecting increased global integration. The confidence channel worked in two ways. First, although the epicenter of crisis was in advanced markets, exposures to emerging markets were reduced sharply with the return of risk aversion.