To be more concrete, the difficulties experienced by a small number of investment funds in June 2007, owing to the non-performance of US sub-prime mortgage securities, led rating agencies to downgrade a large number of asset-backed instruments.
The immediate consequence of these downgrades was a deterioration in the quality of the balance sheets of banks holding those securities, as their price fell and capital losses were incurred. As the number of large and complex financial institutions severely affected by the re-pricing of asset-backed securities was recognised, this financial shock was propagated to the broader financial market and real economy.