Banking in The United States - Late-2000s Financial Crisis

Late-2000s Financial Crisis

The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It was triggered by a liquidity shortfall in the United States banking system and has resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, and a significant decline in economic activity, leading to a severe global economic recession in 2008.

The collapse of the U.S. housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally. Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined. Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts.

There is some debate as to what role the repeal of Glass–Steagall had on the late 2000s financial crisis.

Although there have been aftershocks, the financial crisis itself ended sometime between late 2008 and mid-2009. While many causes for the financial crisis have been suggested, with varying weight assigned by experts, the United States Senate issuing the Levin–Coburn Report found “that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”

Both market-based and regulatory solutions have been implemented or are under consideration.

There has been some nostalgia for the stability of the 1950s to the 1980s, the era of the 3-6-3 Rule, as a preferable way for banks to operate following the bailout of major banks.