 The European banks’ role in the financial crisis of 2007-8: a critical assessmentPhotis Lysandrou New Political Economy, 2022, vol. 27, issue 5, 879-894 Abstract: Since the outbreak of the financial crisis in 2007, opinion has been divided over whether its root cause was weak regulation and bank funding problems or the pressure of investor demand for US safe assets. New research on the European banks’ role in the crisis may finally help to resolve the issue. Far from being peripheral players in the crisis, European banks were deeply implicated in its causal origins as evidenced by their activities in the two US debt markets that were at the heart of the crisis: those for collateralised debt obligations (CDOs) and for asset backed commercial paper (ABCP). These activities would seem to lend weight to the conclusion that regulation and bank funding issues were the key causal variables in the financial crisis. However, it is a conclusion only made possible by ignoring the pre-crisis connection between the federal funds rate and the rate of ABCP demand from the institutional money market mutual funds (MMMFs). This paper argues that when this connection is closely examined, it turns out that the evidence surrounding the European banks’ role in the financial crisis gives greater weight to the safe asset demand explanation of the crisis. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:cnpexx:v:27:y:2022:i:5:p:879-894 Ordering information: This journal article can be ordered from DOI: 10.1080/13563467.2022.2038115 Access Statistics for this article New Political Economy is currently edited by Professor Colin Hay More articles in New Political Economy from Taylor & Francis Journals |
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