Ten years ago this weekend, the failure of Lehman Brothers brought the international financial system close to collapse . The shock triggered a global recession that narrowly avoided becoming a depression. It caused banking crises in two dozen countries and brought in its wake the eurozone debt crisis, austerity and stagnation. Millions lost jobs and homes. A decade later, the banking system is better storm-proofed, though risks have spread elsewhere. Growth has returned, animal spirits in advanced economies are rising. But some deeper consequences of the crash are only now being felt.
They include a backlash against liberal democracy, free markets and globalisation, for which the crisis was not solely responsible but was a catalyst. Rising nationalist populism and protectionism not only risk undermining progress on financial crisis prevention. They pose a threat to the western political and economic system few foresaw in September 2008.
When it comes to strengthening the core global banking system, policymakers can congratulate themselves on a job pretty well done. Banks in most major economies are today backed by as much as 10 times more equity capital than a decade ago, and carry far more liquid funding. Detailed “living will” plans submitted to regulators can be implemented in a crisis. “Bail-in bonds” have been introduced, designed to permit the orderly wind-down of any failing institution.