Have we done enough to ensure that a financial crisis, such as the one that erupted in 2008, does not recur with the same intensity, depth, and scope, whose devastating effects we are still enduring? This article attempts to answer this question. This task is not simple, and even less so from a positive perspective, as it is well known that it is easier to adopt a critical stance than a laudatory one, especially when one has been part of it all.
However, I have no doubt that much has been done, and largely done well. Since the beginning of the crisis, multiple measures were adopted, both nationally and internationally, to curb its effects and prevent its recurrence. Thus, a new, extremely broad and complex regulatory framework has emerged, addressing virtually all aspects of banking activity: solvency, liquidity, resolution, marketing of products and services, consumer relations, governance, accounting, and reporting to authorities, to name just a few of the most important areas.
New international supervisory and resolution institutions have also been created, with working systems, tools, and approaches different from those existing until now. Furthermore, cooperation mechanisms between different authorities have been improved, so that in the next international financial crisis, cooperative solutions will prevail, thus avoiding damaging ring-fencing mechanisms. In short, immense work has been carried out with the sole objective of preventing a similar crisis from occurring again. In fact, the regulatory framework implemented in response to the crisis deserves to be called a new regulatory paradigm: so many changes have been made, both in specific aspects and in the very philosophy of supervision, that they have led to a genuine regime change.
But the improvement is reflected not only in quantitative and balance sheet elements. Improvements have also been made in governance: good corporate governance is essential – as the experience of the crisis demonstrates – for effective risk control and sound decision-making. Likewise, good corporate governance is necessary to foster an appropriate banking culture, an area in which banks have also progressed, although they still have much to do.
As a result of all this, banks are now safer, more liquid, and more solvent. Not only do they have three times more capital, but it is of better quality than in the past. They are also better positioned to face eventual liquidity problems, a significant issue given that banks are, structurally, entities with many liquid liabilities (deposits) and many illiquid assets (loans).
Furthermore, their balance sheets have fewer non-performing loans (the famous NPLs) and, thanks to provisions based on expected losses, potential future credit impairments are better covered.
Broadly speaking, we can be satisfied with what has been done and with the transformation of banking regulation and supervision in just ten years. In reality, the crisis acted as a catalyst to urgently address work that, under other circumstances, would have taken decades. A good example of this is the banking union, completed in Europe in a few months and fully operational in a few years.
