Lessons from the Global Financial Crisis
Mr. Abdul Razak A. Hassan Al Qassim, National Bank of Bahrain, Kingdom of Bahrain
The last 2 years have seen a period of unprecedented financial and economic turmoil. Leading economies of the world have spiralled into recession, major financial institutions have collapsed or have required government support to rescue them from bankruptcy, unemployment has risen globally, trade flows have decreased and some venerated names of yesteryear no longer exist. Co-ordinated action on a massive scale by governments and central banks around the globe was taken in an effort to minimize the adverse effects of the crisis. Although there is no consensus yet, it appears that the worst is probably behind us.
There are important lessons to be learnt from the experiences of the last two years. Commercial bankers, investment bankers, central bankers and governments all need to understand the causes for the unprecedented meltdown that the financial markets witnessed so that regulations, risk management procedures and industry practices are modified and amended to guard against a similar crisis in future.
Many factors led to the crisis including macro economic factors such as cheap money supply, US trade deficit and debt; lax risk management practices; banks moving to the “originate and distribute” model for assets; development of exotic derivative instruments; reliance on rating agencies for credit assessment coupled with the latter’s focus on revenue generation; rapid expansion of the so-called “shadow” financial systems and the supervisory failure in controlling them; and so on.
The address examines such factors in detail, identifies lessons to be learnt and suggests actions required to avoid the possibility of recurrence of a similar crisis in future.
