Jersey: The Global Financial Crisis 10 Years On – Lest We Forget

9 August marked the 10th anniversary of the start of the Global Financial Crisis, which was triggered by the sub-prime mortgage events in the US which caused liquidity to seemingly evaporate from the financial system.

A domino effect of events then occurred, starting with French bank, BNP Paribas, freezing funds which were exposed to those US sub-prime mortgages. Banks stopped lending to each other, the financial system seized up and six weeks later, the first run on a UK bank in more than 100 years happened, resulting in the end of Northern Rock. Next came the failure of several other national banks who required government bailouts.

A year later in 2008, the collapse of Lehman Brothers, the largest bankruptcy filing in US history, caused global markets to collapse - AKA the Credit Crunch. The EU debt crisis arose in 2009 as several EU member states were unable to repay their government debt. The consequences of these events combined created the most devastating global financial crisis since the Great Depression of the 1930s.

There was a realisation that excessive risk taking had been at play using complex financial vehicles which were difficult to understand. The situation was so complicated that many people still don't really understand what happened, so let me try and bring some clarity to it.

The effects were felt most in the banking system because it has a critical role in the global transmission of money. Banks provide loans to customers and to each other, and a safe home for individual and corporate deposits. However, the banking model has its risks and key areas which could give rise to failure or collapse. These are internal structure, interbank connections, external factors and of course, human intervention or psychology.

Internally, for example, a bank's liquidity can be affected when depositors suddenly require a large amount of cash back which is tied up in lending. Banks enabled households, governments and corporates to become highly leveraged through the supply of debt on an increasingly thin capital base, which contributed to increased vulnerability in the global financial system. At an individual level, people were living off their credit, unable to repay it at a moment's notice. The debt they owed significantly outweighed money they held in savings. On a corporate level, it becomes much more complicated.

Global Interbank connections, where banks lend to one another, makes them intricately linked to one another. The failure of Lehman Brothers demonstrated only too clearly and painfully how this risk can manifest itself.

Human intervention and psychology also has a significant effect - sentiment can drive markets, overly optimistic growth strategies, ineffective management, rogue employees, fraud, speculation. Even Gordon Brown, the UK's Chancellor at the time was advocating the end of 'Boom and Bust'. His attempt to explain the stability of the UK's system, human nature took to mean that we couldn't possibly fail and would only grow. One of many factors leading to more risk being put on the table.

The aftermath of a collapsing bank has long lasting effects on an economy including job losses, creation of financial hardship, loss of tax revenues and increase in government debt. The events of a decade ago was so significant we are still feeling the effects, although recovery has been significant.

The UK Government has only recently sold its final stake in banking group, Lloyds, but still has some way to go to reclaim the debt used to bail the banks out. For the first time since 2010, all the major UK banks have recorded a profit for the first half of this year. The Royal Bank of Scotland for example, still 71% backed by the UK government, recently reported a net profit of £680m for the second quarter of the year. Although a swing into positive territory, £342m was earmarked to clean up legacy issues left over from the Crisis.

At the time of the Crisis, many central banks were caught off-guard due to lack of clarity around regulation and what remedies to put in place to fix it. Added complexity arose where coordination was required across numerous agencies. The Crisis revealed that market cycles and trigger events were not sufficiently researched or understood in order to anticipate it happening.

The Governor of the Bank of England (BoE), Mark Carney, has been keen to ensure lessons are learnt. He remains very much on guard in terms of the BoE's role. Talking about this milestone anniversary, he predicted that the UK's financial sector could double in size in the next 25 years, meaning more jobs, tax revenues and exports. However, he also warned that rapid expansion should not be allowed or the government bend to pressure to water down regulation post Brexit, if it meant a repeat of the triggers which led to the events of a decade ago.

Carney's message is a positive one, but comes with a caveat. A 'lest we forget' warning to the industry. Brexit will be the next game changer for the UK's economy and Carney believes that we can have, and should have, ambitious growth plans but it must be safe growth. The UK must effectively manage the risks versus the reward, ensuring all the checks and balances are in place, yet continue to innovate and look for business opportunities outside the EU.

And what about Jersey's economic future? Ten years since the crisis, Jersey continues to prove itself to be markedly resilient. Employment within Jersey's finance industry is back close to pre-crisis levels, although the mix has changed with less banking roles and more roles in trust and funds. The Island also retained its AA-/A-1 credit rating from Standard and Poors, one of the highest possible ratings, which is partly reflected by the stability of our finance industry. We have demonstrated strength in Jersey's industry and the Island's appeal as a leading international finance centre, all the while adapting to the new post-crisis reality, which needs to continue.

We are not sitting back waiting to see how the UK's situation unfolds, but are actively engaged and working together to ensure that Jersey's position is recognised, protected during this period and ready for growth opportunities. It is both a non-EU country with strong links with EU member states and a jurisdiction whose close partnership with the UK remains unchanged following the UK's decision to leave.

Jersey continues to innovate, extend its reach to emerging markets and nurture its relationships with longstanding financial centres, whilst further reinforcing the trusted regulatory and legislative environment that underpins our substance as a jurisdiction of choice.

In the last decade, the financial world has had to rebuild itself and regain the trust of investors. Effective and robust regulation has been a key tenet to regaining trust but not to the detriment of innovation and change. Jersey is certainly not sitting still in this regard and is looking toward the future.

Linkedin - www.linkedin.com/company/jersey-finance
Twitter - @jerseyfinance
Youtube - www.youtube.com/jerseyfinance

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions