Unregulated Leverage and the 2008 Financial Crisis
Rob provides a background to the current banking system by discussing how money is created, and how it impacts ROE and bank regulation.
Overview
Under Basel I, securitisation not only provided banks with plentiful cheap funding to lend, but also allowed banks to reduce the capital they required for the assets they sold to securitisation companies. This led to a spiral of increasing leverage in the banking and investor or shadow banking systems.
Key learning objectives:
What is money, and where does it come from?
How did the crisis impact Northern Rock?
How did Bank regulation impact ROE and leverage?
Summary
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Rob Baston
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