Macroeconomics › Section O · Monetary policy and bank regulation › Topic O.2
Bank regulation and financial crises
Banks are fragile by design, and when many fail together the damage spreads to the whole economy. This topic explains the classic defences of supervision, deposit insurance and the lender of last resort, and why crises still happened, from the savings and loan collapse to 2008.
In this topic
- Why banks are regulated
- Deposit insurance
- The lender of last resort
- When supervision failed: savings and loans
- Bubbles and leverage
- Worked example: leverage cuts both ways
- The 2008 global financial crisis
- Worked example: a thin capital cushion
- Why financial crises hit so hard
- The 2008 response and macroprudential policy
- Common mistakes to avoid
- Key takeaways
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