Policy Brief - Smart financial regulation: Responding to early warning signals
(15 January 2015)
Research from the Tipping Points project highlights the importance of responding to early signs of a financial crisis.
The brief recommends that UK financial regulation needs to be more responsive and anticipatory, identifying early warning signals in advance of an impending financial crisis.
Combining research in financial history and law it reviews some of the lessons learnt from the 2007-08 banking crisis, and how to monitor, prepare and respond to events that may be signs of systemic failure in the UK financial sector.
The UK financial sector is a highly competitive system that has, historically, demonstrated resilience to crisis. All that changed with the banking crisis of 2007-08, affecting not just individual banks but a whole array of interconnected financial institutions, leading to a panic that spread throughout the entire country. While this crisis took many by surprise, it is now evident there were many early warning signals that – if responded to in time – could have mitigated or reduced the impacts of the global financial crisis.