Dr. Constantin Gurdgiev
ALICE IN THE WONDERLAND: THE EU BANKING REFORMS This August, the world marked the tenth anniversary of the Global Financial Crisis that entered its active phase on August 9th, 2007 when BNP Paribas ended clients’ withdrawals from three hedge funds it operated due to “a complete evaporation of liquidity”. Thirteen months later, on September 7th, 2008, two main ‘Federally mandated’ lenders, Freddie Mac and Fannie Mae, were nationalised, and eight days after that, the Lehman Brothers filed for bankruptcy. Just over two weeks after that, Ireland issued a blanket Guarantee of its banks. The crisis turned fully systemic, spreading contagion from the banks to the sovereigns to the real economies, spreading from the U.S. to all corners of the world and triggering the Great Recession. The rest, as some say, is history.
Over the subsequent years, the Fed, the Bank of England, the Bank of Japan and the European Central Bank (ECB), alongside other central banks, deployed rapidly escalating and increasingly unorthodox and costly measures attempting to shore up markets’ liquidity, and subsequently support the economy. The U.S. Treasury and other fiscal authorities around the world pushed into the markets to provide support for banks and financial intermediaries. Waves of nationalisations and resolutions of the banking, insurance, pensions and
investment undertakings swept across the advanced economies and spilled over into a number of key emerging markets. The painful process of deleveraging prompted political shifts and crises that still reverberate across Western electorates, as well as in Asia and Latin America. Debt transfers from banks to governments, subsidised by the Central Banks, have led to an unprecedented increase in the real economic indebtedness around the world, raising total global leverage of households, non-financial corporations and sovereigns from $149 trillion or 276% of global GDP in 2007 to $217 trillion or 327% of GDP at the end of 2Q 2017.