The Subprime Crisis and the Global Public Policy Response

Abstract

In this paper, we look at the root causes of the 2007-2009 subprime financial crisis and its consequences. We then examine the way public authorities responded to the crisis. We emphasize the fact that, from the start, public policy developed along two complementary, but distinct, lines: (i) short term macroeconomic management; (ii) medium to long term reshaping of the financial regulation framework. We point out that the decision process occurred as a global approach instead of having worked at the national level; and we mention the details of this process. Finally we examine the detailed measures concerning required capital ratios, bank liquidity and bank leverage requirements, transparency measures and bankers bonuses proposals. JEL Classification: E32, E58, E62, G38