Summary: The 2008 Financial Crisis

After the 2008 financial crisis, there was a global acknowledgement that the way financial markets and institutions had been regulated was inadequate. Indeed, private banks failed to manage risks, shadow banking expanded without barriers set up to control it and the financial reward scheme was too excessive. Governments were willing to transform the financial system substantially in order to make it more stable, more resilient to shocks and more supportive towards the real economy and economic development. They also recognized that those reforms needed to be well coordinated at the international level. Therefore the G20 developed a certain number of measures to reinforce prudential norms and improve the supervisory capacity of financial authorities.
First, a global confidence crisis emerged: banks, weary, were reluctant to lend money to each other, and households, fearing unemployment, increased their precautionary savings. Companies, anticipating a restricted access to credit, reduced their investments. Secondly, access to credit became more expensive and difficult: due to the increasing risk of default payment, lenders charged borrowers more or refused to lend them money. Restrictive borrowing conditions and the confidence crisis had a particularly negative impact on households and companies’
Macroeconomic imbalances, partly responsible for the financial crisis, were not resolved. Countries’ current account remains unbalanced: United States versus Asia for example. The efficiency of central banks interventions to inject substantial liquidity in the economy is also being called into question and their impacts on inflation and financial stability remain sparsely identifiable. Furthermore, accounting standards have not been modified although they are considered procyclical and their accelerator effect is known to have accentuated the financial