Do financial crises lead to policy change

Abstract

This chapter reviews financial crises and the regulatory responses which followed them. A clear contrast can be drawn between the Baring crisis of 1890, which led to little change in the organization of financial markets in London, and the New York panic of 1907 which prompted a major review of the US financial system and the setting up of the Federal Reserve System in 1913. The system was tested again in the Great Depression and found to be seriously defective and led to the New Deal reforms. The neoliberal view became predominant in Anglo-Saxon countries during the Thatcher government and Reagan administration, leading to reduced state intervention. This was not challenged until the crisis of 2007–8.