Lessons from the Financial Crisis

October 01, 2018

 

On October 1, 2018, CAFIN organized and hosted a panel at the UC Santa Cruz Silicon Valley Campus to mark and draw lessons from the financial crisis of a decade ago. Titled 10 Years after Lehman's Bankruptcy: Where are we now and what Lies ahead?, the moderated panel featured four premier financial experts, who gathered to discuss the events and lessons of the past decade, and what may lie ahead for the world economy.

Almost exactly a decade earlier, on September 15, 2008, financial services giant Lehman Brothers filed for bankruptcy. Stock markets began collapsing around the world, and the global economy entered its worst crisis since the Great Depression. At the CAFIN event, panelists Prof. Darrell Duffie (Stanford), Prof. Barry Eichengreen (UC Berkeley) and Dr. Mark Levonian (Promontory Financial Group) made informative presentations, answered questions from the moderator, Prof. Michael Hutchison (UC Santa Cruz and CAFIN), and engaged in a lively question and answer session with an audience of over 75 people, including academics, finance practitioners, alumni and campus leadership.

Chancellor George Blumenthal and Social Sciences Dean Katharyne Mitchell both made introductory remarks, and UCSC Provost and Executive Vice Chancellor Marlene Tromp was also in attendance. The Chancellor also introduced Stephen Bruce (Cowell '79), who used the occasion to announce a new External Advisory Board for CAFIN, which he will head. He introduced initial Board members Sameet Mehta of Granite Hill Capital Partners, and Tiffine Wang of Singtel Innov8, who were also present.

In opening remarks, and in response to questions from the moderator, Distinguished Professor of Economics Michael Hutchison, the three eminent panelists each reviewed the situation of the financial sector and the global economy a decade after the beginning of the financial crisis. They noted the substantial progress made with post-crisis regulations that have addressed many of the sources of risk that contributed to the crisis, and also areas where regulations might have gone too far or not far enough. Each panelist also highlighted possible future risks, including new sources of risk.

Prof. Eichengreen noted three areas of major risks to global financial stability ten years after Lehman: backsliding risk, shadow banking risk, and emerging market risk. Prof. Duffie emphasized cyber risk, the fragility of China's shadow banking market, and Italian sovereign and bank debt as major potential problem areas going forward. Dr. Levonian touched on regulatory and institutional issues such as the impact of central clearing for derivatives, capital standards for systemically important banks, policy coordination during the crisis and how it has changed since, and initiatives to enhance the quality and availability of data on positions and risks. Questions from the audience included concerns about holding financial malfeasance to account, and the challenge of increasing complexity of financial instruments and trading arrangements.