Working Paper: NBER ID: w15956
Authors: Ross Levine
Abstract: In this postmortem, I find that the design, implementation, and maintenance of financial policies during the period from 1996 through 2006 were primary causes of the financial system's demise. The evidence is inconsistent with the view that the collapse of the financial system was caused only by the popping of the housing bubble and the herding behavior of financiers rushing to create and market increasingly complex and questionable financial products. Rather, the evidence indicates that regulatory agencies were aware of the growing fragility of the financial system associated with their policies during the decade before the crisis and yet chose not to modify those policies.
Keywords: No keywords provided
JEL Codes: E60; G01; G20; G28; H1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial policies implemented from 1996 to 2006 (E69) | Financial system's collapse (F65) |
| Regulatory decisions (G18) | Excessive risk-taking in financial institutions (G21) |
| Policies related to credit rating agencies (G28) | Excessive risk-taking in financial institutions (G21) |
| Policies related to capital requirements (G28) | Excessive risk-taking in financial institutions (G21) |
| Policies related to oversight of mortgage finance entities (G28) | Excessive risk-taking in financial institutions (G21) |
| High-risk activities (L83) | Long-term fragility in financial institutions (F65) |
| Regulatory agencies' awareness of negative consequences (G18) | Maintenance of financial policies (E61) |
| International capital flows (F21) | Financial system's collapse (F65) |
| Herding behavior (C92) | Financial system's collapse (F65) |