The collapse of one of the largest investment banks, Lehman Brothers, ten years ago must serve as a powerful reminder of the fragility of our financial system. Over the last 30 years, finance has lost its connection to the economy and the needs of society.
In its comprehensive analysis of post-crisis regulation, Finance Watch demonstrates that the opportunity for a fundamental realignment of the global financial sector has been missed and that none of the structural vulnerabilities that led to the financial crisis of 2008 have been tackled in a decisive way.
- A thorough reform of the institutional governance framework of the ‘global financial architecture‘, long overdue, has not taken place.
- ‘Systemically important‘ financial institutions have changed little in size and complexity and still pose a major risk to financial stability, with capital requirements only marginally stronger and resolution regimes largely untested.
- The nearly limitless release of liquidity into the financial system by the world’s major central banks has re-routed massive flows of capital and created new ‘bubbles’ that threaten to destabilise the system.
- Artificially low interest rates, misaligned incentives, risky lending and ‘moral hazard’ have conjured up a worryingly familiar ‘déjà vu’ of soaring debt, high levels of non performing loans and the looming spectre of large-scale defaults when interest rates rise.
- With every regulatory step, activities have been allowed to migrate towards the poorly regulated ‘shadow banking’ sector, which has grown in leaps and bounds.
Download the complete Finance Watch report “Ten Years After: Back to Business as Usual. The Pit and the Pendulum – post-crisis financial regulation in Europe” (pdf, 44 pages)