Foundations of Financial Risk: An Overview of Financial Risk and Risk-based Financial Regulation, 2nd Edition

PREFACE The New World of Banking Banking after the Global Financial Crisis

The global financial crisis of 2007-2009 will shape the ways banks are managed for many decades to come. It will also continue to affect the ways that politicians, regulators, analysts, and the general public think about banks and behave toward them.

Banking crises are not unusual. The Argentinian currency revaluation in 2001 led to a crisis for its banks, the Asian financial crisis of 1997 led to the insolvency of many of the region's banks, Sweden suffered a banking crisis in the early 1990s, and in the mid-1970s many second-tier British banks suf­fered huge losses as a result of a collapse in property prices.

Yet the 2007-2009 global financial crisis stands out from other banking crises due to its global extent, its impact on economic growth, and the far-reaching policy responses that have followed it. In all three respects, what happened in 2007-2009 resembles the financial crash and economic depres­sion of the late 1920s and early 1930s more than it does any of the other banking system crises of more recent years.

The events of 2007-2009 challenged many of the widely held assump­tions about how banks and banking systems worked. In simple terms, many things that would have been dismissed as unthinkable a few years before actually happened.

For example, it had always been assumed that banks and other commer­cial institutions would invariably make liquidity available to other financial institutions ...