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Financial Crisis: Will We Ever Learn? - Xavier Vives (IESE)


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Roundtable on Lessons from the financial crisis: how much longer until the end of the crisis?

Barcelona GSE Summer Forum
Barcelona Graduate School of Economics
June 21, 2013

Published in: Economy & Finance, Business
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Financial Crisis: Will We Ever Learn? - Xavier Vives (IESE)

  1. 1. Lessons from the financialcrisis: how much longeruntil the end of the crisis?Xavier VivesIESE Business SchoolJune 2013
  2. 2. VIX: Fear index(Jun. 19 2013)Fuente: Yahoo Finance.2008LehmanBrothersfailure2010 -SovereignDebt Crisis
  3. 3. Financial crisis
  4. 4. Proportion of countries withbanking crises: 1900-2008Weighted by their share of world incomeWorld War IThe Panicof 1907The GreatDepressionThe First Global Financial Crisisof 21st CenturyEmerging Markets, Japan,the Nordic Countries, and US (S&L)PercentofcountriesSource: Figure 1 in Reinhart & Rogoff (2008), “Banking Crises, An Equal Opportunity Menace”, NBER WP 14587.
  5. 5. Will we ever learn?
  6. 6. Context of the crisis
  7. 7. Is the current crisis similar or notto past crises?
  8. 8. Bank panic inOctober 1907
  9. 9. Bank panic in October 2007
  10. 10. The saviors
  11. 11. J.P. Morgan
  12. 12. Summary diagnose
  13. 13. Regulatory failure and the crisis
  14. 14. Source: Adrian-Shin (2010)
  15. 15. The weight of historyCapital ratios for UK and US banksSource: Banking of the State, Bank of England, Nov 2009. (FT Lex, Jan 23, 2010)
  16. 16. Source: Adrian-Shin (2010)
  17. 17. Managing liquidity orcontrolling solvency?• Great Depression– Lack of attention to liquidity (Friedman andSchwartz)• Great Recession– Lack of attention to solvency?• European banking problems are liquidity problems• Draghi’s put and the euro fragility as a self-fulfillingcrisis– Why are banks not lending?
  18. 18. Principles for financial reform
  19. 19. The future of the euroor how long Draghi’s magic will work
  20. 20. VIX(Jun. 19 2013)Fuente: Yahoo Finance.2012 JulyDraghi«ECB Will DoWhat’s Needed toPreserve Euro»2008LehmanBrothersfailure2010GreeceBailout2011 MayECB bailsout Portugal2011Greek defaultprobability increases2012Greeks vote in a generalelection rejecting thecountrys bailoutagreement with the EUand IMF
  21. 21. Banking union
  22. 22. Spain
  23. 23. ‐105‐95‐95‐86‐62‐62‐61‐35‐26‐11‐8912313766127‐150 ‐100 ‐50 0 50 100 150PortugalSpainGreeceIrelandSlovakiaEstoniaCyprusSloveniaItalyFranceAustriaMalta*FinlandNetherlandsGermanyBelgiumLuxembourgNet foreign position relative to GDPEnd of June 2011*End of December 2010.Source: Eurostat, Ifo Institute calculations.% of GDP in 2011