Securitisation and innovations linked to such securities opened up the option to shift credit risk in sub-prime loans to the markets and thereby free the pressure on banks’ capital, which in turn led to the significant weakening in standards for credit assessment.
Emergence of shadow banks – and the tendency to circumvent regulations Many leading international banks started/sponsored off-balance sheet Structured Investment Vehicles (SIVs) to freely undertake activities which were not possible otherwise because of regulatory norms for banks, like capital adequacy and management of liquidity risks.