This article was published in TSE science magazine, TSE Mag. It is part of the Autumn 2025 issue, dedicated to finance and money. Discover the full PDF here and email us for a printed copy or your feedback on the mag, there.
In 2008, a financial hurricane swept the world. Banks failed. Stock markets collapsed. Millions lost jobs, homes, and savings. Since then, regulators have tried to patch up defenses. But have they done enough? We asked a TSE expert on banking crises to consider why the system can seem so opaque, unstable and unfair.
What role should finance play in a just society?
Finance isn’t evil. Ideally, the system connects those who have money with those who need it. It supports growth by allocating capital efficiently, across space and time, while managing risk. This helps households save, businesses invest, and governments borrow.
Can we predict crises?
Not precisely or consistently, but economists try to identify warning signs such as unsustainable debt or speculative bubbles, which form when everyone believes prices will keep rising. All bubbles burst... but it’s almost impossible to predict the exact timing and trigger.
Crises often begin with a gradual erosion of confidence before a small shock sets off panic. This is known as a Minsky moment, after the economist who warned that long periods of stability lead to complacency, risk-taking, and eventual collapse.
How has finance evolved in recent years?
Since the 1990s, three big trends have created a highly integrated global network. Disintermediation means transactions increasingly happen outside traditional banks. Deregulation relaxed rules on capital flows. Decompartmentalization broke down barriers within markets. These changes boosted efficiency and innovation but also helped local crises to spread faster and further.
After the 2008 crash, new rules improved transparency and monitoring. Banks must now hold more capital and undergo regular stress tests, reducing the risk of bank runs or credit freezes. But financial contagion remains a threat, especially if consumer confidence and supply chains are fragile.
What else needs to be fixed?
Finance has become too focused on speculative, short-term trading. It increasingly favors capital – mostly owned by the rich – over the labor that provides the average person’s income. Meanwhile, the complexity of new financial products widens information gaps that enrich the powerful and unscrupulous.
These problems are worsened by regulatory gaps, often in new fintech sectors such as shadow banks. Without proper supervision, innovations such as derivatives and high-frequency trading add instability instead of creating value.
