Question

Give examples of shocks that might result the market value of an FI to become
negative (whereas it was positive before the shock)?

Answer 1

Value of an FI depends on the differences of Assets and Liability it holds. If Assets Value goes down substantially after any major economic events/shock its FIs Value may become negative.

examples of shocks that might result in the market value of an FI to become negative

• One of the such events was the 2008 Housing bubble crisis. Many Housing Finance / Mortgage firm's values became negative. What exactly happened? Housing finance firms offered loans/ Mortgage loans to consumers based on the prevailing market value of Mortgage/property. But after the crisis market price of Mortgage/Housing fell sharply resulting asset price of those firms went down steeply. If Consumers defaulted on loan firms were not able to get loan value by selling mortgages property. The market value of those  FI becomes negative.
• Another Upcoming crisis happening in COVID-19 situation in developing economies. Where many micro Financial institutions offered unsecured loans to small business owners. But due to prolonged lockdown in the COVID-19 crisis stopped economic activity. Resulting in small businessmen defaulting on interest / principal payments on their unsecured business loans. Assets Value of those micro FI goes down during this period resulting he market value of an FI to become negative.