CAMBRIDGE, Massachusetts: After the 2008 global financial crisis, governments and central banks in advanced economies vowed that they would never again let the banking system hold policy hostage, let alone threaten economic and social well-being.
Thirteen years later, they have only partly fulfilled this pledge. Another part of finance now risks spoiling what could be – in fact, must be – a durable, inclusive, and sustainable recovery from the horrid COVID-19 shock.
The story of the 2008 crisis has been told many times. Dazzled by how financial innovations, including securitisation, enabled the slicing and dicing of risk, the public sector stepped back to give finance more room to work its magic.
Some countries went even further than adopting a “light-touch” approach to bank regulation and supervision, and competed hard to become bigger global banking centres, irrespective of the size…