The Banking Crisis of 2007-2008, and Contemporary Responses

Abstract

Until 2006, the financial system prosperedand was stable, and Basel II rules were viewed ascontributing to that stability. The financial crisis of2007-2008 forced a change in those beliefs, asimbalances spread and risks materialized, affectingbanks and other financial institutions, and impairingeconomic growth. We discuss the causes of the financialcrisis, the response measures that were applied bygovernments, central banks and the changes insupervision and regulation that are being preparedunder Basel III, to increase the resilience of banks, andto reduce the risks of future crisis.