Financial writer Robert Stowe England details the major lessons bankers should learn from the 2007-2008 financial crisis, including the paramount need for holistic risk management.
April 19, 2011
The financial crisis of 2007 and 2008 took a terrible toll on banks. Global losses on loans and securities were estimated by the International Monetary Fund to be as high as $4.1 trillion at the bottom of the recession in early 2009. In the United States, many banks failed or had to be rescued with hundreds of billions in emergency capital injections from the federal government. Here in 2011, three years after the crisis, bankers are still dealing with the aftershocks as financial institutions struggle to restore both revenues and customer trust to pre-crisis levels.
Can it happen again? That’s hard to say because any future crisis is unlikely to be caused by the same set of conditions that set off the 2007-2008 crash. But we can still look back at what happened back then and try to extract some lessons to prevent anything similar occurring today.
After a year spent researching the topic, here are the lessons that I think are most relevant to bankers today:
1. Be Prepared for Unexpected Shocks. The chief revelation from the crisis is that enormous systemic risks can arise and remain hidden for years before they are unleashed at a moment’s notice with grave consequences.