Nine lessons from the global financial crisis
Here’s a summary scorecard of post-crisis accomplishments, unfinished business and unintended consequences.
1. A safer banking system. Thanks to strengthened capital buffers, more responsible approaches to balance sheets and better liquidity management, the banks no longer present a major systemic risk in most advanced countries, and especially the U.S. That doesn’t mean every country and every bank is safe; but the system as whole is no longer the Achilles’ heel of market-based economies.
1. Still-elusive inclusive growth. It took far too long for policy makers in advanced countries to realize that the great recession caused by the financial crisis had important structural and secular components. An excessively cyclical mindset initially impeded the design and implementation of the measures needed to generate high and inclusive growth. By the time mindsets evolved, the political window had narrowed. Even today, most advanced countries have yet to adopt measures to durably boost actual growth and stop the downward pressure on potential expansion.
1. The big got bigger and the small got more complex. Although more progress has been made on what to do when a bank fails, especially when it is large, the market structure that emerged from the financial crisis involves significantly larger institutions, particularly U.S.-based ones. The same phenomenon of the big having gotten bigger can be seen in asset management. It has come at the expense of a gradual hollowing out of the middle of the distribution of financial firms. Meanwhile, the other end of the size distribution consisting of small institutions has been increasingly populated by the proliferation of fintech activities that, for the most part, haven’t been tested through a cycle downturn…