Past Event

Unfinished business: The unexplored causes of the financial crisis and the lessons yet to be learned

At this event Tamim Bayoumi will present his upcoming book on the financial crisis, showing how the Euro crisis and U.S. housing crash were, in fact, parasitically intertwined.

Date: September 28, 2017, 12:30 pm Topic: European Macroeconomics & Governance

video & audio recording


 

 

 

 

 

SUMMARY

The discussion went around the recent book, called “Unfinished Business”. Nine years ago a financial giant – Lehman Brothers filed for bankruptcy and it was followed by the loss of belief in the banking system. However, as it was underlined in the discussion, it was not only policymakers, who at that time did not expect a crisis, but academics and financial experts as well who underestimated the existing risks.
The main motivation for the book was a frustration of the author about what has been written on the financial crisis of 2008 before. It was biased either towards the North Atlantic economy discussion or Europe’s reaction to the financial crisis. Contrary, the author’s approach is instead to study the origins to understand the story behind and underlying forces to finish an unfinished business. The book’s focuses on the financial regulation aspects.
The central question of the discussion was how the collapse of one bank led to the collapse of the financial system worldwide and a short answer is that a whole series of regulatory missteps took place. The story goes back to 1980s. The European banks in mid 80s made a transition from lightly capitalized universal banks to better capitalized commercial periphery banks and later in 1992 the decision to have banking regulation at national level was made. This provoked two tendencies, which are a focus of regulators on national level and the fast expansion of banks. In the US, in comparison to the EU, there were highly separated either commercial or investment banks. In 2002 the structure of the US banking system changed from the strongly capitalized commercial banks to lightly capitalized US investment banks, which led to the transfer of mortgage from commercial to investment banks. By 2002 securitization was the most popular option, banks sold most mortgages to markets and after 2003 private mortgage securities surged. European banks had about 50 % of GDP in the North Atlantic banks mainly because that’s where investment banking was taking place in 2007. We allowed banking system to expand by creating demand through creating loans. Looking back, from the recent research it seems that bank oriented financial systems are more vulnerable compared to market oriented and this primarily explains why the US performed relatively better during the financial crisis.
The title “Unfinished business” speaks for itself, but it seems important to mention that there is a lot of finished business too with the progress reached in the European banking system. We have improvements in terms of the increased quality and quantity of capital, banking models used and the requirement to have financial stability authorities to mention a few. We are moving forward.

 

Event Notes by Yana Myachenkova

Unfinished Business: The Unexplored Causes of the Financial Crisis and the Lessons Yet to Be Learned

Schedule

Sep 28, 2017

12:30-13:00

Check-in and lunch

13:00-13:30

Presentation

Tamim Bayoumi, Deputy director, strategy, policy, and review department, IMF

13:30-13:45

Comments

Aerdt Houben, Director Financial Markets, De Nederlandse Bank and professor, University of Amsterdam

13:45-14:30

Audience Q&A

14:30

End

Speakers

Tamim Bayoumi

Deputy director, strategy, policy, and review department, IMF

Maria Demertzis

Deputy Director

Aerdt Houben

Director Financial Markets, De Nederlandse Bank and professor, University of Amsterdam

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

matilda.sevon@bruegel.org

Read article Download PDF

External Publication

Central banking in turbulent times

Central banks came out of the Great Recession with increased power and responsibilities. Indeed, central banks are often now seen as 'the only game in town', and a place to put innumerable problems vastly exceeding their traditional remit. These new powers do not fit well, however, with the independence of central banks, remote from the democratic control of government.

By: Francesco Papadia and Tuomas Valimaki Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 22, 2018
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Post-crisis prognosis for macroeconomics

The global financial crisis prompted the field of macroeconomics to rethink its methods. In this Director's Cut of 'The Sound of Economics', Bruegel deputy director Maria Demertzis addresses the changes made and the problems still unresolved, in conversation with Nicola Viegi, South African Reserve Bank professor of monetary economics at the University of Pretoria, and Frank Smets, director general of economics at the European Central Bank.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: May 15, 2018
Read article More on this topic More by this author

Blog Post

Global income inequality is declining – largely thanks to China and India

Income inequality among citizens of 146 continues to fall, though at a somewhat reduced pace, according to the updated Bruegel dataset. Income convergence of China and India accounts for the bulk of the decline in global income inequality from 1988-2015.

By: Zsolt Darvas Topic: Global Economics & Governance Date: April 19, 2018
Read about event More on this topic

Past Event

Past Event

Bank assets and business models: addressing complexity

At this event, we discussed the lack of transparency and problems in valuing correctly significant parts bank assets in the euro area based on an extensive study by the Bank of Italy.

Speakers: Simon Ainsworth, Paolo Angelini, Josina Kamerling, Martin Merlin, Alexander Lehmann and Nicolas Véron Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 21, 2018
Read article More on this topic More by this author

Blog Post

Central banks in the age of populism

Two years of elections have shown that we live in an age of increasing political and economic populism. What are the consequences of that for central banks? We explore opinions about it, from both 2017 and more recently.

By: Silvia Merler Topic: Finance & Financial Regulation Date: March 19, 2018
Read about event More on this topic

Past Event

Past Event

The future of the EU budget: MFF post-2020

Which should be the priorities for the Multiannual Fiscal Framework post 2020?

Speakers: Roger Havenith, Günther H. Oettinger, Charlotte Ruhe, Margit Schratzenstaller-Altzinger and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 7, 2018
Read article More on this topic

Blog Post

Don’t put the blame on me: How different countries blamed different actors for the Eurozone crisis

Why did the eurozone have such difficulties coming to terms with its own shortcomings? The authors believe they have found part of the answer, through an algorithm-based cross-country media analysis.

By: Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim Topic: European Macroeconomics & Governance Date: March 1, 2018
Read about event

Past Event

Past Event

(How) could European safe assets be constructed?

At this event we looked at the ESRB task force’s investigation on safe assets.

Speakers: Levin Holle, Sam Langfield, Anne A. Leclercq and Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 1, 2018
Read article More on this topic More by this author

Blog Post

Clouds are forming over Italy’s elections

While the prospect of a gridlock reassured investors about the short-term risk of an anti-establishment government, Italy still needs a profound economic shake-up and is in no position to afford months or years of dormant governments.

By: Alessio Terzi Topic: European Macroeconomics & Governance Date: February 28, 2018
Read about event More on this topic

Past Event

Past Event

Bruegel - Financial Times Forum: The future of euro-area governance

The third event in the Bruegel - Financial Times Forum series looked into the future of euro-area governance.

Speakers: Maria Demertzis, Gideon Rachman, Manfred Weber and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 27, 2018
Read about event More on this topic

Past Event

Past Event

Is there life After TTIP? The future of transatlantic economic relations

The partnership between North America and Europe is becoming unsettled and uncertain. How can we deal with this new situation that threatens the prosperity and ultimately the position of North America and Europe in the global economy.

Speakers: Maria Demertzis, Daniel S. Hamilton, Luisa Santos and André Sapir Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 19, 2018
Read article Download PDF More on this topic

Policy Contribution

Tales from a crisis: diverging narratives of the euro area

Who gets the blame for the crisis? How did narratives of the crisis develop since 2007? The authors of this paper tried to identify the key crisis-related topics in articles from four opinion-forming newspapers in the largest euro-area countries.

By: Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim Topic: European Macroeconomics & Governance Date: February 15, 2018
Load more posts