Preventing a New Global Financial Crisis Amidst the Current 'Inflation Crisis' and the Spring 2023 Bank Failure Episodes

The quite recent (2007-2009) global financial crisis (GFC), which was caused by a mix of business, regulatory, supervisory, and macroeconomic (in terms of sub-optimal fiscal and/or monetary policies) failures, had a negative impact both on the financial system – with the failure, through the activation of contagious effects, of several commercial and (in the US) investment banks and their subsequent, in most cases, bail-out by public funds – and on the real sector of the economy (recession, closure of non-financial businesses, and unemployment) in several countries all over the globe. As the footprint of that crisis in the collective memory is still bold, it is inevitable that any subsequent significant banking failure episodes, such as those in the US and Switzerland as recently as during spring 2023, raise concerns of eventual conditions for a “repeat” of the GFC and its grave multidimensional (and not only economic/financial) negative consequences.This article briefly develops on the significant differences between now and then as to the macroeconomic environment, the monetary policy strategies and instruments, and the adequacy of the financial regulatory framework to prevent and manage financial (and in particular banking) crises (under Section 1); discusses the structural vulnerability of banks to some financial risks, which is intertemporal (Section 2); presents the causes of the recent banking failures and the measures (successfully) taken to deal with them to avoid contagious spill-over effects (Section 3); identifies the existing threats to financial stability amidst the current phase of the inflation crisis (Section 4); and identifies the areas where the financial regulatory framework could potentially be further enhanced (Section 5)