Prone to Fail: The Pre-Crisis Financial System

Prone to Fail: The Pre-Crisis Financial System

July 19,2018Working Paper No. 3728

In the years leading up to the financial crisis that began in 2007, the core of the financial system was vulnerable to major shocks emanating from any of a variety of sources. While this particular crisis was triggered by over-levered home owners and a severe downturn in U.S. housing markets (Mian and Sufi, 2015), a reasonably well supervised financial system would have been much more resilient to this and other types of severe shocks.