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Making Sense of the GFC: Where did it Come from and what do we do Now?

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  • Ian Harper
  • Mike Thomas

Abstract

The collapse of the global financial system following the events of September 2008 was unprecedented in its global reach and the response elicited from governments. The Global Financial Crisis has called into question the basic assumption of Efficient Markets Theory that traded financial instruments will always have a market price – indicating that capital markets as well as depository institutions can suffer liquidity crises or ‘runs’ due to asymmetric information. This paper traces the causes and implications of the GFC, focusing especially on the Australian financial system and its regulation. Attention is drawn to the need to review financial sector regulation in light of the GFC in order to rebalance the mix between competition and regulation in financial markets. But the paper also notes the danger of over‐regulation with its potential to stifle innovation and constrain the risk‐allocation function of financial markets.

Suggested Citation

  • Ian Harper & Mike Thomas, 2009. "Making Sense of the GFC: Where did it Come from and what do we do Now?," Economic Papers, The Economic Society of Australia, vol. 28(3), pages 196-205, September.
    • Handle: RePEc:bla:econpa:v:28:y:2009:i:3:p:196-205
    DOI: 10.1111/j.1759-3441.2009.00033.x
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    References listed on IDEAS

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    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
    3. Franklin Allen, 2001. "Do Financial Institutions Matter?," Journal of Finance, American Finance Association, vol. 56(4), pages 1165-1175, August.
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