US subprime market faces FBI probe over improper lending

30-01-2008

US subprime market faces FBI probe over improper lending
The Federal Bureau of Investigation (FBI) has announced it is investigating 14 companies in relation to the subprime mortgage crisis.

The move is intended to root out any instances of improper lending in the United States' subprime sector that could have sparked the ongoing global economic slowdown.

According to the FBI the investigation encompasses several sectors of the market, including developers, lenders and financiers.

The bureau refused to name the 14 companies being investigated.

But media reports suggest some of Wall Street's largest banks, including Goldman Sachs, Morgan Stanley, Bear Stearns and Merrill Lynch, have all been contacted by government investigators for information on their sub-prime portfolios.

It remains unclear if they are included in the companies that are under investigation.

The Securities and Exchange Commission (SEC) - the market regulator in the US - is working in conjunction with the FBI on the investigation, which could potentially yield criminal charges for individual bankers if they are found to be culpable.

The global credit crunch, which has seen markets worldwide in a slump because of increasing borrowing costs, was caused by a knock-on effect from a mini-collapse in the subprime market in the United States.

This in turn has forced the US House of Representatives to pass a $146 billion (£70 billion) economic package designed at sparking activity in the financial markets.

It also led to British bank Northern Rock being rescued by a government-sponsored safety loan after savers rushed to withdraw money from the institution following reports it had been hit hardest by the credit crunch.

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