Watch out for small banks and financial institutions

[moh malekpour]

Housing octopus could snare smaller banks: Fed official

The tentacles of the housing market collapse and associated financial market turmoil could still grab smaller banks and financial institutions that have so far avoided disaster, a top expert at the Federal Reserve warned Friday.

So far, the financial market turmoil has ensnared mainly banks and securities firms who operate across the globe. These firms created, traded, and carried on their books the complex securities tied to mortgages that came to be considered toxic and almost worthless.

But Eric Rosengren, the president of the Federal Reserve Bank of Boston, warned that smaller institutions are at risk, especially if home prices fall further and the housing market recession lasts longer.