Lessons from financial crisis in UK: Don’t leave it too late, simulate

Alex Brazier of Bank of England in this useful set of colourful slides tells us how UK financial system has fared since the 2008 crisis.

He mentions how the crisis started from non-banks/shadow banks and then gulfed the banking system. One slide says: Shadow Banks didn’t contain problems but spread them. Then discusses how the changes have led to more capitalisation and less leverage in the system.

But then as one cannot take anything for granted, one should simulate risks as much as possible. Hence the title: Don’t leave it too late, simulate. This is not to be mistaken with stimulate. However, even best of simulation models fail in panic and crisis modes.

For all you know, RBI would be struck with the same problem. So far, it was looking at banking problem alone. With IL&FS, it would be wondering whether the troubles in the shadow banking system are big enough to upset the cart of the entire financial system.

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