The days of “the great moderation” are over, if they ever existed in the first place.
For the past six years, central bankers, regulators, and policy makers have been deliberating on the catastrophic events of 2008 and beyond and continue to find themselves preoccupied with the prevention of future financial crises. As Andy Haldane of the Bank of England has repeatedly warned, central banks and other regulators have responded with evermore byzantine and finely tuned rules. The world of finance has grown more complex and interconnected over the last three decades, and the 2007-08 panic introduced further intricacies, which may still be insufficient to prevent a future major financial crisis.
So how far have we come since Lehman? How much more do we have to do? Haldane acknowledges that there has been some “de-risking” of the system, while at the same time acknowledging that much of the risk aversion is a product of the Lehman debacle and its aftermath, as opposed to structural change, which may or may not have gone far enough to prevent a future crisis. At least the debate has moved a long way forward, Haldane argues.
In the interview, he notes that simpler measures of capital adequacy have received much greater prominence in regulators’ deliberations and regulation is finally moving in a more streamlined, simplified framework. Yet he still poses the question of whether we have done enough in these areas.
It’s almost certain that we will need to do more. But at the least the world can feel somewhat more at ease, given the existence of thoughtful, far-sighted thinkers such as Haldane, a man who has consistently proven himself willing to challenge the prevailing, if mistaken, status quo.
Video