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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Featured Pathways

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Plans & Membership

Our Platform

Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

Featured Content

More featured content

Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

More featured content

Book a demo

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Lessons from the 2023 Financial Crisis

Lessons from the 2023 Financial Crisis

David Soanes

30 years: Capital Markets

In this video, David explains the 2023 banking crisis's impact compared to the 2008 financial crisis. He discusses the reasons behind the limited market confidence restoration from the 2008 bailout and why banks were unprepared.

In this video, David explains the 2023 banking crisis's impact compared to the 2008 financial crisis. He discusses the reasons behind the limited market confidence restoration from the 2008 bailout and why banks were unprepared.

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Lessons from the 2023 Financial Crisis

17 mins 28 secs

Overview

The 2023 banking crisis' impact was less severe than the 2008 financial crisis due to the lessons learned. The 2008 bailout hastily stabilised banks without fully restoring market confidence, prompting measures like quantitative easing. It was partially caused by Lemon Theory applying to the mortgage market, creating a wave of 'lemon' mortgages. The 2023 crisis, on the other hand, was met with regulatory provisions for loss-absorbing equity and planned resolutions. Despite Credit Suisse's strong finances, a confidence crisis forced a UBS takeover, highlighting the importance of robust regulatory frameworks. It showed that crises of confidence can rival financial insolvency in destructiveness, underscoring the need for vigilant oversight.

Key learning objectives:

  • Understand how the 2008 bailout package stabilised the system but failed to restore full market confidence

  • Understand why banks were so underprepared in 2008

  • Understand how lemon mortgages contributed to the 2008 financial crisis

  • Understand the cause of the banking crisis at the start of 2023

  • Outline how developments within financial regulation prevented a financial meltdown in 2023

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Summary
Why did the 2008 bailout package stabilise the system, but fail to restore full market confidence? 
The 2008 bailout package stabilised the system by providing liquidity to banks, supporting their short-term borrowing, and guaranteeing new liabilities. However, it didn't fully restore market confidence because the financial markets' trust had evaporated, causing the interbank market to seize up and counterparties to stop trading. More measures such as rate cuts, an asset protection scheme, and quantitative easing were needed to gradually rebuild confidence, indicating the initial bailout package's limited effect on market sentiment.

Why were banks not prepared in 2008?
Banks were unprepared for the 2008 crisis as they had not foreseen the closure of the wholesale debt market or banks ceasing unsecured lending. They lacked detailed plans for a large bank's potential collapse and didn't have sufficient loss-absorbing equity due to high leverage. The emergency decisions made in the first week of October 2008 were more reactionary, influenced by immediate threats and available tools rather than thorough contingency planning, highlighting the lack of comprehensive foresight.

How did ‘lemon’ mortgages contribute to the 2008 financial crisis?
‘Lemon’ mortgages contributed to the 2008 financial crisis by degrading the quality of the mortgage market. Because of the concept of securitisation, mortgage lenders were incentivised to originate poor-quality, unaffordable loans, or lemons, for higher fees. These were then packaged into mortgage-backed securities and bought by banks. When the US economy faltered, doubts about these bad mortgages spread, eroding confidence as banks couldn't determine the quality of others' assets. This systemic uncertainty, spurred by a surge of bad loans, significantly disrupted the financial system.

What caused the banking crisis at the start of 2023?
The 2023 banking crisis, marked by the forced takeover of Credit Suisse by UBS, was primarily caused by a fast crisis of confidence. Unlike the 2008 financial crisis, regulatory improvements and planning mechanisms limited the impact, preventing a cascade of crises despite the initial market panic.


What developments within financial regulations and lessons learned prevented a complete financial meltdown in 2023?
The prevention of a total financial meltdown in 2023 was largely due to developments within financial regulations and lessons learned from the 2008 crisis. The implementation of Basel III standards resulted in a stronger capital base and stricter liquidity and funding requirements, which improved banks' resilience to shocks and downturns. Enhanced supervision ensured better adherence to these regulations, while routine stress tests helped identify vulnerabilities early. Additionally, improved internal governance within banks, promoting a culture of risk awareness and accountability, played a crucial role in managing potential crises.

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David Soanes

David Soanes

David Soanes, who has recently retired after 31 years with UBS, highlights the firm's resilience in overcoming significant challenges. He is proud of UBS's financial and reputational strength in merging with Credit Suisse. David held various roles, including managing equity and debt capital markets businesses, investment banking activity in EMEA, and being the group's country head in the UK. He was involved in designing the UK's 2008 bailout plan for the banking system.

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