Economic Reforms since the 2008 Global Financial Crisis
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Last updated 15 Jan 2023
The global financial crisis of 2008, also known as the Great Recession resulted in a significant economic downturn and led to a number of economic / regulatory reforms. Some of these reforms are included in this study note:
- Financial regulatory reform: In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010, which aimed to increase transparency and oversight in the financial industry, and strengthen consumer protections. Similarly, many other countries also implemented new regulations to strengthen their financial systems.
- Central bank policies: Central banks around the world implemented monetary policies, such as lowering interest rates and quantitative easing, to help stabilise the economy and encourage growth. In some countries, negative interest rates were tried and in the UK, official monetary policy interest rates stayed at 1% or below for a decade or more. rates had been 5.5% just before the global financial crisis.
- Fiscal stimulus: Governments around the world implemented Keynesian fiscal stimulus measures, such as increased government spending and tax cuts, to lift aggregate demand.
- Bailouts and nationalisations: Governments intervened to stabilise banks and other financial institutions by providing bailouts and nationalising some of them. See below for UK examples.
- International cooperation: The G20 and other international organizations worked together to address the crisis and implement reforms to improve the stability of the global financial system.
- Micro-prudential and macro-prudential policies: Central banks and financial regulators implemented new policies to address systemic risks in the financial system, with the focus on both the micro-prudential level (individual institutions) and macro-prudential level (systemic risks).
- Consumer protection: Governments and regulators increased efforts to protect consumers from fraud and other financial abuses.
- Basel III Accords: Basel III Accords were implemented to strengthen bank capital, liquidity and leverage requirements to make the financial system more robust and resilient to future crises.
These are some of the key economic reforms that have been implemented since the global financial crisis of 2008.
During the global financial crisis of 2008, the UK government took steps to stabilise the banking system by nationalising several major banks. The banks that were nationalized in the UK are:
- Royal Bank of Scotland (RBS): The government took a majority stake in RBS in 2008, and the bank remained majority-owned by the government until 2015.
- Lloyds Banking Group: The government took a majority stake in Lloyds, which included Lloyds TSB and Halifax Bank of Scotland (HBOS), in 2008. The government began gradually selling off its stake in Lloyds starting in 2013 and completed the sale of the last of its shares in 2017.
- Northern Rock: Northern Rock, a mortgage lender, was nationalized in 2008 after experiencing a run on deposits. The government later sold Northern Rock to Virgin Money in 2012
- Bradford & Bingley: In 2008, the government nationalized the savings business and mortgages of the Bradford & Bingley, a UK-based mortgage bank, and later sold them off to Santander UK.
It is worth noting that the UK government's nationalisation of these banks was intended to be temporary, and the goal was to return them to private ownership once they were stabilised.