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How do we prevent the next financial crisis?

Marcus Opp, Associate Professor in financial economics at the Stockholm School of Economics, has received a research grant from the Marianne and Marcus Wallenberg Foundation to study how to prevent banks from taking risks that can trigger another financial crisis.

The great financial crisis of 2008 demonstrated how important the banking system is for the economy in general. A crisis in individual banks quickly developed into a recession that hit large parts of the world. Governments in many countries launched massive programs to support banks in trouble, and the programs helped many banks to get back on their feet. But such support efforts can also have the effect to make banks even more careless: the banks may begin to expect the government to save them when the next crisis hits.

Marcus Opp will conduct a three-year research project to study how the regulations that were introduced after the financial crisis have affected the behavior of banks. The main question is to find out which regulations have worked and which have not worked as intended.