Although it’s been over a decade since the 2008-09 financial crisis, there are plenty of lessons to have been learned. We have enjoyed an economic recovery, to be sure, although it has been rather uneven – especially for people on the lower end of the income bracket with little to no investments or savings.

Unfortunately, those people represent nearly half of the U.S., and while there may have been easy money to be made given ultra-low interest rates and other stimulants, too many hard-working people had no means to take advantage of them.

The aftermath of the crisis produced reams of new legislation, the creation of new oversight agencies that amounted to an alphabet soup of acronyms like TARP, the FSOC and CFPB – most of which barely exist today – new committees and sub-committees, and platforms for politicians, whistle-blowers and executives to build their careers on top of, and enough books to fill a wall at a bookstore, many of which still exist.

As the COVID-19 pandemic sends the economy into a tailspin once again, the government and the Fed are looking back at the lessons learned from the last economic downturn to see how to help reduce some of the severity.

• Could the Financial Crisis in 2007 have been Avoided?
• Was the 2008 Financial Crisis Avoidable?
• Who Profited off the 2008 Financial Crisis?
• How was the Financial Crisis of 2008 Solved?
• What Caused the 2008 Recession?
• What will Cause the Next Financial Crisis?

Could the Financial Crisis in 2007 have been Avoided?

The macroeconomic forces that were unleashed in the years leading up to the financial crisis were strong. It is unlikely that a single country could have stemmed the tide. China’s participation in international trade in goods added several hundred million persons to the global workforce over a few years.

Read Also: The Negative Effects of Financial Regulation on the Banking System in the United States

This increased the room for strong, non-inflationary global growth. China was not prepared, however, to liberalise its capital markets fully. The Chinese government was not willing to allow its currency to float freely and the exchange rate against the US dollar was managed. This disabled an important stabiliser and contributed to increasing world trade imbalances.

Long-term interest rates remained low in spite of substantial monetary policy tightening in the US between 2004 and 2006. International organisations such as the BIS, OECD, IMF and others noted on more than one occasion that growing imbalances in the world economy were a source of concern.

But economic policy decisions are the prerogative of national governments. Given the policy pursued by China, there were probably limits to what monetary policy in Western countries could in reality achieve in terms of rolling back these forces.

Increased private savings in the US and other deficit countries would probably have required monetary policy tightening sufficient to push up long-term interest rates. Alternatively, a substantial increase in public sector savings would have been necessary.

Both alternatives would probably have led to an economic policy-driven downturn. It is demanding to pursue such a policy based on the proposition that a crisis might occur in the future.

Improved financial regulation would probably have reduced the severity of the financial crisis. Regulation and insurance have similar features: in most cases an annual premium must be paid in the form of slightly lower growth.

This occurs because capital is not allowed to flow entirely freely to the highest yielding vehicles. In return, regulation can counter the build-up of financial imbalances. This reduces the probability that a negative event will trigger a severe financial crisis.

It is not optimal to be fully insured against crises because the insurance premium would be too high. But the financial crisis demonstrated that the imbalances ahead of the crisis were unsustainable and that they could have been reduced through regulatory improvements.

The reason that this did not occur may be that the risk had taken on the form of several interwoven imbalances that no single authority had the power to correct.

Banking and financial market regulation will be enhanced in Norway and abroad. The Basel Committee on Banking Supervision and the Financial Stability Board (FSB), as mandated by the G20, will soon issue recommendations for strengthening regulation of banks’ capital and liquidity management.

In the UK, the regulatory authorities have already drawn up new banking regulation.  A natural consequence of the financial crisis is that increased weight is given to ensuring system-wide stability and not only the stability of individual banks.

Other important questions are whether systemically important banks should be subject to tighter regulation and how to reduce the procyclicality of bank behavior.

Recommendations from the Basel Committee and the FSB will be examined by national authorities that will subsequently adopt new regulations. In a world with a global financial market, there are limits to how far a single country go it alone.

International coordination is important for new regulations to have the intended effect. The crisis has opened a political window for tighter regulation of the financial system, but it is uncertain how long the window will remain open.

Was the 2008 Financial Crisis Avoidable?

Regulators, politicians and bankers were to blame for the 2008 US financial meltdown, a report has claimed. The US Financial Crisis Inquiry Commission, tasked with establishing the causes of the crisis, said it was “avoidable“.

Its report highlighted excessive risk-taking by banks and neglect by financial regulators. Only the six Democrat members of the 10-strong commission, set up in May 2009, endorsed the report’s findings.

“The crisis was the result of human action and inaction, not of Mother Nature or models gone haywire,” the report said.

“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public.

“Theirs was a big miss, not a stumble.”

Ethical breaches

The damning report criticised the extent of the financial deregulation overseen by the former chairman of the Federal Reserve, Alan Greenspan.

It concluded that the crisis was caused by a number of factors:

• Failures in financial regulation, including the Federal Reserve’s failure “to stem the tide of toxic mortgages”
• A breakdown in corporate governance that led to “reckless” actions and excessive risk taking by financial institutions
• Households taking on too much debt
• A lack of understanding of the financial system on the part of policymakers
• Fundamental breaches in accountability and ethics “at all levels”.

It added that “collapsing mortgage-lending standards” and the packaging-up of mortgage-related debt into investment vehicles “lit and spread the flame of contagion”.

These complex derivatives, which were traded in huge volumes by major investment banks, then “contributed significantly to the crisis” when the mortgages they were based on defaulted.

The report also highlighted the “abysmal” failures of the credit ratings agencies in recognising the risks involved in these and other products.

Blame game

Leading figures of the George W Bush and Obama administrations were not let off lightly:

• Former Federal Reserve chairman Alan Greenspan was accused of “championing” financial deregulation during the credit boom that “stripped away key safeguards”.
• Mr Greenspan was also indirectly criticised for the Fed’s overly loose monetary policy and pronouncements that “encouraged rather than inhibited the growth of mortgage debt and the housing bubble”
• The Federal Reserve Bank of New York – then under the aegis of the current Treasury Secretary, Tim Geithner – “could have clamped down on Citigroup’s excesses in the run-up to the crisis”
• The government’s handling of major financial institutions during the crisis – led by former Treasury Secretary Henry Paulson – was inconsistent and “increased uncertainty and panic in the market”
• Goldman Sachs – initially under Mr Paulson’s leadership – was singled out for its role in creating “synthetic CDOs” from 2004 that helped magnify risks by letting clients bet against the mortgage market.

However, the report did soften the blow, saying: “In making these observations, we deeply respect and appreciate the efforts made by Secretary Paulson, Chairman Bernanke, and Timothy Geithner… and so many others who labored to stabilise our financial system and our economy in the most chaotic and challenging of circumstances.”

Establishing blame was essential in preventing future crises, the report said.

“Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs,” said Phil Angelides, chairman of the commission.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done.

“If we accept this notion, it will happen again.”

The commission interviewed more than 700 witnesses and held 19 days of public hearings across the US.

Dissent

All four Republicans on the commission announced several weeks in advance of the report’s publication that they would not agree with its findings.

Three of them published a separate report that insisted that blame should be attributed to Mr Greenspan’s Federal Reserve.

The fourth produced his own report focusing on the role of government in creating the housing bubble.

Republicans have pointed to the giant government-sponsored mortgage agencies (GSEs), Freddie Mac and Fannie Mae, whose subsidised lending they claim inflated the bubble.

They have also argued that legislation introduced by former Democratic President Bill Clinton had encouraged excessive and reckless lending to low income households.

In contrast, the report penned by the six Democrats on the panel said the evidence showed that the GSEs were not at the forefront of the riskiest sub-prime lending, but instead they followed the lead of Wall Street firms.

Nor was the “Community Reinvestment Act” a significant factor in subprime lending, the report said, although “community lending commitments not required by the [act] were clearly used by lending institutions for public relations purposes”.

Who Profited off the 2008 Financial Crisis?

You can’t really understand the philosophies and actions of successful investors without first getting a handle on the financial crisis. What happened in the lead up to the crash and the Great Recession that followed afterward remains stamped in the memories of many investors and companies.

The financial crisis of 2007-2008 was the worst to hit the world since the stock market crash of 1929. In 2007, the U.S. subprime mortgage market collapsed, sending shockwaves throughout the market. The effects were felt across the globe, and even caused the failure of several major banks including Lehman Brothers.

Panic ensued, with people believing they would lose more if they didn’t sell their securities. Many investors saw their portfolio values drop by as much as 30%. The sales resulted in rock-bottom prices, erasing any potential gains investors would normally have made without the crisis.

While many people were selling, there were others who saw this as a chance to increase their positions in the market at a big discount.

Warren Buffett

In October 2008, Warren Buffett published an article in The New York Times op-ed section declaring he was buying American stocks during the equity downfall brought on by the credit crisis. His derivation of buying when there is blood in the streets is to “be fearful when others are greedy, and be greedy when others are fearful.”

Buffett was especially skilled during the credit debacle. His buys included the purchase of $5 billion in perpetual preferred shares in Goldman Sachs (GS) that paid him a 10% interest rate and also included warrants to buy additional Goldman shares.

Goldman also had the option to repurchase the securities at a 10% premium. This agreement was struck between both Buffett and the bank when they struck the deal in 2008. The bank ended up buying back the shares in 2011.

Buffett did the same with General Electric (GE), buying $3 billion in perpetual preferred stock with a 10% interest rate and redeemable in three years at a 10% premium. He also purchased billions in convertible preferred shares in Swiss Re and Dow Chemical (DOW), all of which required liquidity to get them through the tumultuous credit crisis.

As a result, Buffett has made billions for himself but has also helped steer these and other American firms through an extremely difficult period.

John Paulson

Hedge fund manager John Paulson reached fame during the credit crisis for a spectacular bet against the U.S. housing market. This timely bet made his firm, Paulson & Co., an estimated $15 billion during the crisis.

He quickly switched gears in 2009 to bet on a subsequent recovery and established a multi-billion dollar position in Bank of America (BAC) as well as approximately two million shares in Goldman Sachs. He also bet big on gold at the time and invested heavily in Citigroup (C), JP Morgan Chase (JPM), and a handful of other financial institutions.

Paulson’s 2009 overall hedge fund returns were decent, but he posted huge gains in the big banks in which he invested. The fame he earned during the credit crisis also helped bring in billions in additional assets and lucrative investment management fees for both him and his firm.

Jamie Dimon

Though not a true individual investor, Jamie Dimon used fear to his advantage during the credit crisis, making huge gains for JP Morgan. At the height of the financial crisis, Dimon used the strength of his bank’s balance sheet to acquire Bear Stearns and Washington Mutual, which were two financial institutions brought to ruins by huge bets on U.S. housing.

JP Morgan acquired Bear Stearns for $10 a share, or roughly 15% of its value from early March 2008. In September of that year, it also acquired WaMu. The purchase price was also for a fraction of WaMu’s value earlier in the year.

From its lows in March 2009, shares of JP Morgan more than tripled over 10 years and have made shareholders and its CEO quite wealthy.

Ben Bernanke

Like Jamie Dimon, Ben Bernanke is not an individual investor. But as the head of the Federal Reserve (Fed), he was at the helm of what turned out to be a vital period for the Fed.

The Fed’s actions were ostensibly taken to protect both the U.S. and global financial systems from meltdown, but brave action in the face of uncertainty worked out well for the Fed and underlying taxpayers.

A 2011 article detailed that profits at the Fed came in at $82 billion in 2010. This included roughly $3.5 billion from buying the assets of Bear Stearns, AIG, $45 billion in returns on $1 trillion in mortgage-backed security (MBS) purchases, and $26 billion from holding government debt.

The Fed’s balance sheet tripled from an estimated $800 billion in 2007 to absorb a depression in the financial system but appears to have worked out nicely in terms of profits now that conditions have returned more to normal.

Carl Icahn

Carl Icahn is another legendary fund investor with a stellar track record of investing in distressed securities and assets during downturns. His expertise is in buying companies and gambling firms in particular.

In the past, he has acquired three Las Vegas gaming properties during financial hardships and sold them at a hefty profit when industry conditions improved.

To prove Icahn knows market peaks and troughs, he sold the three properties in 2007 for approximately $1.3 billion—many times his original investment.

He began negotiations again during the credit crisis and was able to secure the bankrupt Fontainebleau property in Vegas for approximately $155 million, or about 4% of the estimated cost to build the property. Icahn ended up selling the unfinished property for nearly $600 million in 2017 to two investment firms, making nearly four times his original investment.

Keeping one’s perspective during a time of crisis is a key differentiating factor for the investors noted above. Another common thread is having close connections to the reins of power, as most of these men maintained close relationships with the elected and appointed government officials and agencies that doled out trillions of dollars to the benefit of many large investors.over their careers and especially during this period.

The likes of JP Morgan and the Fed are certainly large and powerful institutions that individual investors can’t hope to copy in their own portfolios, but both offer lessons on how to take advantage of the market when it is in a panic. When more normalized conditions return, savvy investors can be left with sizable gains, and those that are able to repeat their earlier successes in subsequent downturns end up rich.

How was the Financial Crisis of 2008 Solved?

Initially, policymakers reacted quite successfully, says Newton. “Following the ideas of [influential interwar economist] John Maynard Keynes, governments didn’t use public spending cuts as a means of reducing debt. Instead, there were modest national reflations, designed to sustain economic activity and employment, and replenish bank and corporate balance sheets via growth.

“These packages were supplemented by a major expansion of the IMF’s resources, to assist nations in severe deficit and offset pressures on them to cut back which could set off a downward spiral of trade. Together, these steps prevented the onset of a major global slump in output and employment.

“By 2010, outside the USA, these measures had been generally suspended in favour of ‘austerity’, meaning severe economies in public spending. Austerity led to national and international slowdowns, notably in the UK and the eurozone.

It did not, however, provoke a slump – largely thanks to massive spending on the part of China, which, for example, consumed 45 percent more cement between 2011 and 2013 than the US had used in the whole of the 20th century.”

Daunton adds: “Quantitative easing worked in stopping the crisis becoming as intense as in the Great Depression. The international institutions of the World Trade Organisation also played their part, preventing a trade war. But historians might look back and point to grievances that arose from the decision to bail out the financial sector, and the impact of austerity on citizens’ quality of life.”

What Caused the 2008 Recession?

The financial crisis was primarily caused by deregulation in the financial industry. That permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives. They created interest-only loans that became affordable to subprime borrowers.

In 2004, the Federal Reserve raised the fed funds rate just as the interest rates on these new mortgages reset. Housing prices started falling in 2007 as supply outpaced demand. That trapped homeowners who couldn’t afford the payments, but couldn’t sell their house.

When the values of the derivatives crumbled, banks stopped lending to each other. That created the financial crisis that led to the Great Recession.

Deregulation

In 1999, the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act, repealed the Glass-Steagall Act of 1933. The repeal allowed banks to use deposits to invest in derivatives. Bank lobbyists said they needed this change to compete with foreign firms. They promised to only invest in low-risk securities to protect their customers.

The following year, the Commodity Futures Modernization Act exempted credit default swaps and other derivatives from regulations. This federal legislation overruled the state laws that had formerly prohibited this form of gambling. It specifically exempted trading in energy derivatives.

Who wrote and advocated for the passage of both bills? Texas Senator Phil Gramm, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs. He listened to lobbyists from the energy company, Enron.

Senator Gramm’s wife, who had formerly held the post of Chairwoman of the Commodities Future Trading Commission, was an Enron board member. Enron was a major contributor to Senator Gramm’s campaigns. Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Larry Summers also lobbied for the bill’s passage.

Enron wanted to engage in derivatives trading using its online futures exchanges. Enron argued that foreign derivatives exchanges were giving overseas firms an unfair competitive advantage.

Securitization

How did securitization work? First, hedge funds and others sold mortgage-backed securities, collateralized debt obligations, and other derivatives. A mortgage-backed security is a financial product whose price is based on the value of the mortgages that are used for collateral. Once you get a mortgage from a bank, it sells it to a hedge fund on the secondary market.

The hedge fund then bundles your mortgage with a lot of other similar mortgages. They used computer models to figure out what the bundle is worth based on several factors. These included the monthly payments, the total amount owed, the likelihood you will repay, and future home prices. The hedge fund then sells the mortgage-backed security to investors.

Since the bank sold your mortgage, it can make new loans with the money it received. It may still collect your payments, but it sends them along to the hedge fund, who sends it to their investors. Of course, everyone takes a cut along the way, which is one reason they were so popular. It was basically risk-free for the bank and the hedge fund.

The investors took all the risk of default, but they didn’t worry about the risk because they had insurance, called credit default swaps. These were sold by solid insurance companies like the American International Group.

Thanks to this insurance, investors snapped up the derivatives. In time, everyone owned them, including pension funds, large banks, hedge funds, and even individual investors. Some of the biggest owners were Bear Stearns, Citibank, and Lehman Brothers.

A derivative backed by the combination of both real estate and insurance was very profitable. As the demand for these derivatives grew, so did the banks’ demand for more and more mortgages to back the securities. To meet this demand, banks and mortgage brokers offered home loans to just about anyone.

The Growth of Subprime Mortgages

In 1989, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) increased enforcement of the Community Reinvestment Act. This Act sought to eliminate bank “redlining” of poor neighborhoods. That practice had contributed to the growth of ghettos in the 1970s.

Regulators now publicly ranked banks as to how well they “greenlined” neighborhoods. Fannie Mae and Freddie Mac reassured banks that they would securitize these subprime loans. That was the “pull” factor complementing the “push” factor of the CRA.

The Fed Raised Rates on Subprime Borrowers

Banks hit hard by the 2001 recession welcomed the new derivative products. In December 2001, Federal Reserve Chairman Alan Greenspan lowered the fed funds rate to 1.75%. The Fed lowered it again in November 2002 to 1.25%.

That also lowered interest rates on adjustable-rate mortgages. The payments were cheaper because their interest rates were based on short-term Treasury bill yields, which are based on the fed funds rate. But, that lowered banks’ incomes, which are based on loan interest rates.

Many homeowners who couldn’t afford conventional mortgages were delighted to be approved for these interest-only loans. As a result, the percentage of subprime mortgages more than doubled, from 6% to 14%, of all mortgages between 2001 and 2007. The creation of mortgage-backed securities and the secondary market helped end the 2001 recession.

It also created an asset bubble in real estate in 2005. The demand for mortgages drove up demand for housing, which homebuilders tried to meet. With such cheap loans, many people bought homes as investments to sell as prices kept rising.

Many of those with adjustable-rate loans didn’t realize the rates would reset in three to five years. In 2004, the Fed started raising rates. By the end of the year, the fed funds rate was 2.25%. By the end of 2005, it was 4.25%. By June 2006, the rate was 5.25%.

 Homeowners were hit with payments they couldn’t afford. These rates rose much faster than past fed funds rates.

In 2005, homebuilders finally caught up with demand. When supply outpaced demand, housing prices started to fall. New home prices fell 22% from their peak of $262,600 in March 2007 to $204,200 in October 2010. Falling home prices meant mortgage-holders could not sell their homes for enough to cover their outstanding loan.

The Fed’s rate increase couldn’t have come at a worse time for these new homeowners. They couldn’t afford the rising mortgage payments. The housing market bubble turned to a bust. That created the banking crisis in 2007, which spread to Wall Street in 2008.

Deregulation in the financial industry was the primary cause of the 2008 financial crash. It allowed speculation on derivatives backed by cheap, wantonly-issued mortgages, available to even those with questionable creditworthiness.

Rising property values and easy mortgages attracted a lot of people to avail of home loans. This created the housing market bubble. When the Fed raised interest rates in 2004, the consequential increased mortgage payments squeezed home borrowers’ abilities to pay. This burst the bubble in 2007.

Since home loans were intimately tied to hedge funds, derivatives, and credit default swaps, the resounding crash in the housing industry drove the U.S. financial industry to its knees as well. With its global reach, the U.S. banking industry almost pushed most of the world’s financial systems to near collapse as well.

To prevent this, the U.S. government was forced to implement enormous bail-out programs for financial institutions previously billed as “too big to fail.”

The 2008 financial crisis has similarities to the 1929 stock market crash. Both involved reckless speculation, loose credit, and too much debt in asset markets, namely, the housing market in 2008 and the stock market in 1929.

What will Cause the Next Financial Crisis?

Sheila Bair, who headed the FDIC during the dark days of the 2008 financial crisis, recently discussed current dangers to the financial system in a lengthy interview with Barron’s. Bair had warned of a coming subprime mortgage meltdown, a major precursor of the 2008 crisis, when other prominent figures, such as former Federal Reserve Chairman Alan Greenspan, disagreed that there was a U.S. housing bubble. “The memories—and lessons—of what drove the crisis are completely being ignored,” she told Barron’s.

Bair’s four big areas of concern, as discussed with Barron’s: reduced bank capital requirements, soaring private debt, a ballooning federal budget deficit, and massive student loan debt. She also shared opinions on Chinese debt, bitcoin, and cyber risk.

1. Reduced Bank Capital

Bair does not have an issue with some bank deregulation, “such as easing unnecessary supervisory infrastructure on regional and community banks.”

However, especially regarding the “large, complex financial institutions that drove the crisis,” she asserted to Barron’s: “To loosen capital now is just crazy. When we get to a downturn, banks won’t have the cushion to absorb the losses. Without a cushion, we will have 2008 and 2009 again.”

An independent research arm of the U.S. Treasury Department has found that the financial system still would be in great peril if one or more big banks fail, despite reforms enacted after the 2008 crisis.

Similarly, economics professor Kenneth Rogoff of Harvard University believes that leading central banks around the world are unprepared to deal with a new banking crisis.

2. Soaring Private Debt

When asked for her opinion on what might trigger the next financial crisis, Bair pointed to soaring private debt. She mentioned credit card debt, subprime auto loans, loans that finance corporate leveraged buyouts, and general corporate debt. “Any type of secured lending backed by an asset that is overvalued should be a concern,” she indicated, adding, “That is what happened with housing.”

3. Ballooning Federal Deficit

“If we keep throwing gas on flames with deficit spending, I worry about how severe the next [economic] downturn is going to be—and whether we have enough bullets left [to fight it],” Bair opined. “I also worry when the safe-haven status of Treasuries is questioned,” she added.

Bair continued: “I don’t think Congress has a clue that the reason they have been able to get away with this profligacy is that we are the best-looking horse in the glue factory. But we are in the glue factory. Our fiscal situation is not a good one.”

4. Student Debt

Bair also is alarmed about student debt, which is a staggering $1.3 trillion, Barron’s says. “There are parallels to 2008: There are massive amounts of unaffordable loans being made to people who can’t pay them, and the easy availability of those loans is leading to asset inflation,” she observed.

A big part of the student loan problem, Bair said, is that educational institutions raise tuition with impunity because “they have no skin in the game, like [many lenders] in the mortgage crisis.” That is, the federal government, not the colleges themselves, bears the risk of default.

Reforming for Student Loans

Bair supports a system in which the colleges and the government split the cost of student loans 50/50, and repayment is on a sliding scale, as a percentage of future income. She believes that philanthropies also should get “into the mix.”

The reason, she said: “We need high school math teachers just like we need hedge fund managers, but we have a one-size payment system, whether you are making $36,000 or $360,000.”

Another matter of concern to Bair: “Student debt also suppresses small-business formation. Kids who would have started a business in their parents’ garage can’t do that now because they owe $50,000.”

“Prudence” vs. “Short-Termism”

Banks and regulators alike in China are increasingly concerned about risk management, credit quality, and nonperforming loans, Bair says, noting that “prudence” and “sustainable growth” are becoming watchwords.

Read Also: What Challenges do Financial Companies face in Emerging Economies?

She adds: “I’m struck by the difference in the tone of the political leadership—with [China’s President] Xi talking about deleveraging, constraining asset bubbles, and accepting short-term trade-offs to growth for long-term stability. Contrast that to the U.S., where we have a move to deregulation and borrowing more. It saddens me that we are falling prey to short-termism.”

Bitcoin and Cyber Risk

Bair told Barron’s that bitcoin has no intrinsic value, but neither does government-issued paper money. The market should determine its value, in her opinion, while government should focus on disclosure, education, fraud prevention, and curbing its use to support criminal activities. She advises people not to invest in it unless they can afford a complete loss.

Given all their other post-crisis concerns, Bair told Barron’s that regulators fell behind on dealing with systemic cyber risk. Right now, however, she is happy to see that they have become very focused on it.

A Contrasting Viewpoint

In contrast to Sheila Bair’s concerns, a bullish view on the banking sector has been offered by widely followed bank analyst Dick Bove. He believes that U.S. banks are entering a new, decades-long golden age of growing profitability. Meanwhile, the KBW Nasdaq Bank Index (BKX) is up 530% from its intra-day low on March 6, 2009, through the close on March 2, 2018, outdistancing the 304% gain for the S&P 500 Index (SPX).