When the 2008 global financial crisis hit, social media wasn’t nearly as interwoven into daily life as they are today
will trigger a repeat spiral. It is very possible, even likely, that the current drama worsens, but the global financial system is in so much better shape today than it was in 2008, and that should do wonders for staunching contagion.This time around, the assets sitting on bank balance sheets aren’t toxic – and that means the banks still trust one another, so they are still lending to each other every day.
In 2008, it was the opposite. Banks owned so many troubled assets, and these securities were so intertwined, that it was nearly impossible to know who had exposures to what. Because there was such a complex web of mortgage-backed securities – investments tied to undesirable U.S. mortgages – the trust between institutions disappeared and they stopped lending to each other. These loans are made behind the scenes every single day, and they keep the system humming.
U.S. banks are also in much better financial health heading into this air pocket. The metrics used to measure their strength are a little technical, but in short, banks are sitting on much larger cash cushions this time around, and these piles serve as shock absorbers. This is particularly true for major banks. The 2008-09 crisis proved that some institutions are simply too big to fail. Watchdogs spent years determining which banks fit this bill, and those that do have been labelled “global systemically important banks” or “domestic systemically important banks.” Any bank with one of these labels must hold more cash reserves than smaller peers, and they must also adhere to additional guidelines.
The watchdogs themselves have also changed how they operate in a crisis. Before 2008-09, it was almost inconceivable that a major lender could crumble. Today there’s a full playbook for it. The Federal Reserve took control of
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