The Global Financial Crisis: Features and Resolution

The global financial crisis (GFC) of 2007–2009 was the most systemic shock to the world economy since the Great Depression, representing a paradigm case of systemic failure. The crisis arose from a complex interaction of factors. Core causes included persistently loose monetary policy, which fueled a significant bubble in the US housing market and the rapid proliferation of high-risk subprime mortgages. Structural vulnerabilities were generated by a fundamental shift to the “originate-to-distribute” lending model, creating moral hazard. Complex securitization products obscured risk, an issue exacerbated by biased credit rating agencies. Risk accumulation was concentrated in the shadow banking sector, leading to a classic maturity mismatch vulnerable to a sudden withdrawal of wholesale funding. These risks were hidden by fragmented US regulatory architecture and a lack of macroprudential oversight. The crisis culminated with the failure of Lehman Brothers on September 15, 2008, which triggered systemic panic and financial contagion. This shock immediately caused a credit freeze, evidenced by the Reserve Primary Fund “breaking the buck” and massive withdrawals from the commercial paper market. The subsequent failure of financial functions resulted in a severe global recession. To mitigate impact, policymakers implemented extraordinary interventions. Key responses included central bank liquidity measures, such as the Commercial Paper Funding Facility (CPFF) and the US Troubled Asset Relief Program (TARP). Postcrisis reforms focused on systemic resilience, including the US Dodd-Frank Act and international Basel III regulations, which enhanced global capital and liquidity standards.