The financial crisis of 2008 devastated the American economy and caused U.S. policymakers to rethink their approaches to major financial crises. Five years have passed since the collapse of Lehman Brothers, but questions persist about the best ways to avoid and respond to future financial crises.
On Tuesday, October 1st, the Brookings Institution and the Hoover Institution jointly hosted a conference addressing these issues. Twenty-four economic and legal scholars discussed the crisis, its effect on the U.S. economy, and the way ahead. The conference took place simultaneously in Washington, DC and Stanford, CA, with simulcasting between the locations for maximum interaction among panelists and audience members. The event was organized by Martin Baily, a senior fellow in Brookings’ Economic Studies Program, and John Taylor, a senior fellow in Economics at Hoover. Approximately seventy experts in economics and public policy were present at the Brookings location.
The first of four panels focused on the causes and effects of the financial crisis. Participants discussed the evolution of banks and other financial institutions, considering post-crisis regulatory policy reforms and emerging financial and economic trends. Panelists reflected on the roles played by highly accommodative monetary policy, securitization run amok, government-sponsored enterprises (GSEs), large asset bubbles, excessive leverage, and the Federal funds rate, among other potential causes. The second panel focused on the role played by the Federal Reserve. Speakers commented on the Fed’s actions before, during, and after the 2008 panic and the implications for future policy. They considered monetary and lender-of-last-resort policies and the nexus between these and regulatory policy.
The third panel focused on the concept of Too Big to Fail. Participants considered capital, subordinated debt, risk and moral hazard, macroprudential regulation, and international interconnectedness. Speakers discussed new liquidity requirements, the role of systemically important financial institutions (SIFIs), and run-prone liabilities, among other topics. The fourth panel focused on bankruptcy, bailout, and resolution. Panelists reviewed and assessed resolution frameworks, considering experiences with Lehman Bros. and other firms in the crisis, Title II of the Dodd-Frank Act, and the Chapter 14 bankruptcy code proposal.
A diverse group of panelists made for a day of lively discussion and interesting debate. As participants worked to identify the way forward, they highlighted the need for policies that can adequately help us avoid and respond to future crises. Many opinions were presented, but the experts seemed to agree on the need for further discussions among those with a range of views on the development of suitable regulatory policy.