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The Evolution of the Financial Crisis of 2007—8

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  • Barrell, Ray
  • Davis, E. Philip

Abstract

The financial crisis that started in August 2008 has reached a climax in the autumn of 2008 with a wave of bank nationalisations across North America and Europe. Although banking crises are not uncommon, this is the largest since 1929–33. This paper discusses the build-up to the crisis, looking at the role of low real interest rates in stimulating an asset price bubble. That bubble was stocked by financial innovation and increases in lending. New financial products were not stress tested and have failed in the downturn. After discussing the bubbles we look at the collapse of the complex asset structure, and then put the crisis in the context of the literature. The paper concludes with a discussion of policy implications of the crisis, and advocates a significant improvement in the regulatory structure.

Suggested Citation

  • Barrell, Ray & Davis, E. Philip, 2008. "The Evolution of the Financial Crisis of 2007—8," National Institute Economic Review, National Institute of Economic and Social Research, vol. 206, pages 5-14, October.
    • Handle: RePEc:cup:nierev:v:206:y:2008:i::p:5-14_2
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    Cited by:

    1. Lartey, Theophilus & James, Gregory A. & Danso, Albert & Boateng, Agyenim, 2022. "Bank business models, failure risk and earnings opacity: A short- versus long-term perspective," International Review of Financial Analysis, Elsevier, vol. 80(C).
    2. Stephen R. J. Tsuji, 2022. "Canada’s Impact Assessment Act, 2019: Indigenous Peoples, Cultural Sustainability, and Environmental Justice," Sustainability, MDPI, vol. 14(6), pages 1-52, March.

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