N. Transatlantic Banking Crisis: Analysis, Rating, Policy Issues

Abstract

The Transatlantic Banking Crisis has raised many critical questions. Standard economic analysis has assumed that financial markets are efficient and that there are few reasons to assume that financial market dynamics could derail the real economy seriously. Instead, the international banking crisis—starting in the USA in summer 2007—has shown that there are temporary bubble phenomena in the housing and asset markets: Financial markets are not efficient during critical periods. Financial market efficiency means that current prices and ratings reflect all relevant information and that a single interest rate is sufficient to describe the system of financial markets adequately. Instead, the crisis of 2007–2009 in the USA and Europe has revealed that one needs a broader analysis of various financial markets.