Catherine R. Schenk, Professor of International Economic History at the University of Glasgow
While there has been considerable commentary on the possible lessons from the Great Depression for coping with the 2007/8 crisis we don’t need to go back so far to identify earlier experiences of financial crises that revealed failures in regulatory oversight. Although the process of regulating banking and financial systems began much earlier, the current structures of international regulation were forged by key episodes since the Second World War: the innovation of the Eurocurrency market in the 1960s and 1970s, the growth of country risk culminating in the sovereign debt crisis of the early 1980s, and the rash of currency and financial crises in emerging economies in the 1990s. Governments, multilateral regulatory and supervisory agencies and financial institutions responded to each round by developing structures and rules that have not proved robust to the rapid pace of financial innovation and enhanced integration of markets. There were several warning episodes through the past fifty years that should have prompted better regulatory responses. The fundamental causes of the 2007 crisis can be clearly identified in previous rounds of turmoil. This is not merely hindsight; these problems were carefully deliberated over by governments, central banks and bankers themselves for over forty years. It wasn’t that policy-makers, bankers and stakeholders were unaware of the problems, but rather that they could not conspire to resolve them. This lecture will identify these failures.