The anatomy of a financial crisis
What is the source of a financial crisis? Why are financial systems fragile and why do they occasionally collapse? At CEPR’s June 2022 Paris Symposium, Stephen Cecchetti talked about his study on this topic. He looked at the 2007 and 2009 financial crises, comparing them with the most recent economic crisis caused by the COVID-19 pandemic, in order to identify structures within the system that are likely to be less resilient. What Cecchetti calls the anatomy of a financial crisis, can unfold in five steps in which people’s willingness to take on risks and their trust in financial institutions play a key role.