The symposium that commemorated the global financial crisis’ tenth anniversary served as the basis for this brief. It looks at the causes of the crisis, how it was handled, and the lessons that were drawn from it.
In brief
Summaries of research papers and talks with central bankers from the November 2018 “2008 Financial Crisis: A Ten-Year Review” conference in New York City are included in the “Ten Years After” Brief. The Annual Review of Financial Economics published the entire versions of the articles, and the CFA Institute website offers access to the real live conference sessions.
The purpose of the brief summaries, which are condensed versions of the original papers, is to inform investors and practitioners on the state of scholarly inquiry about the financial crisis of 2008. The Brief is especially interesting because it is an edited and annotated transcript of a discussion regarding the crisis involving central bankers Ben Bernanke, Lord Mervyn King, and Jean-Claude Trichet.
The eleven pieces that make up the Brief’s summary offer a comprehensive overview of current research that goes beyond explaining the causes of the global financial crisis to include research avenues and conclusions that shed light on the 2008 crisis.
Harold James discusses the growing resistance to globalization following the crisis in “Deglobalization: The Rise of Disembedded Unilateralism,” along with the corresponding drop in international trade and cross-border investment. He however point out that resistance to globalization could result in its reform and revival.
Gary Gorton connects the vulnerability of short-term debt, in general, to financial catastrophes. Because banks play a crucial role in maturity transformation, which is required for market economies to thrive, market economies are inherently vulnerable. As a result, financial crises have happened frequently throughout history.
Paul S. Willen and Christopher L. Foote examine mortgage default studies, which policymakers need better comprehend in order to respond to financial crises more skillfully. They point out that data backs up the idea that deferring payments can effectively lower the rate of default. Individual borrower failures, however, are harder to estimate since they rely on unforeseen shocks to their income.
Felipe Severino, Antoinette Schoar, and Manuel Adelino explain why it’s critical to accurately identify the causes of the 2008 financial crisis in order to avert a recurrence. They examine the crisis’s beginnings and present data that challenges several widely held notions. They come to the conclusion that regulators ought to take countercyclical loan-to-value standards and time-varying capital requirements into account. Capital requirements, liquidity requirements, and scope regulation are the three levers of modern prudential regulation that Matthew Richardson, Kermit L. Schoenholtz, and Lawrence J. White critically examine.They stress that in order to lower systemic risk, authorities should choose the most economical instruments. An summary of post-financial crisis reforms is given by Andrew Metrick and June Rhee, who categorize their presentation into three categories: preventative, emergency, and restructuring powers. They point out that while the current reforms have primarily moved the focus from emergency response to preventive and limiting measures, some of the more complicated and unproven regulations still remain.
In her analysis of the recipients and costs of the bailouts that occurred during the 2008 financial crisis, Deborah Lucas brings objectivity and clarity to the debate over these actions. In their examination of the reasons behind bank deleveraging after the crisis, Tobias Adrian, John Kiff, and Hyun Song Shin argue that factors other than more regulation have been the primary driver of deleveraging. Additionally, they structure the post-2008 regulatory reforms around four goals and come to the conclusion that more investigation is required into the unintended repercussions of these changes. An overview of the recent and expanding body of work on asset pricing models based on financial intermediary frictions is provided by Zhiguo He and Arvind Krishnamurthy.
Robert Engle examines the effects of financial firm undercapitalization on financial crises as well as the financial system’s risk capacity—its ability to resist the risk that undercapitalized institutions cause. He provides proof that, since the financial crisis, systemic risk has significantly decreased. Stephen G. Ryan examines new findings that link financial stability with financial reporting. He arranges and examines the data in particular along three lines: violations of capital requirements, risk management and control systems of banks, and market and regulator discipline over banks.
Ben Bernanke, Jean-Claude Trichet, and Lord Mervyn King, three central bankers, discussed their perspectives and direct experiences with the global financial crisis during the Stanley Fischer-moderated “Central Banker Roundtable.” The roundtable discussed issues like the origin and scope of the crisis, the resources at hand for combating it, the rate at which it is spreading internationally, and the hitherto unheard-of informal coordination between central banks. The necessity of controlling maturity transformation, moral hazard, and the future of central bank independence were among the other subjects discussed.