Lesson one: Banks matter

In their satirically entitled book “This Time Is Different”, Reinhart and Rogoff argue that financial crises are almost always caused by similar things – even though most experts are convinced it is different each time around. Certainly, whenever there had been a recession in the past, the authorities knew what to do and how to respond to it.

On this occasion however, it was a complex banking sector recession – which meant it was the banks that had to be fixed. And for all the bank-bashing that has filled the airwaves, the first key lesson is that financial intermediaries, like banks, do matter – if they are broken then we know that the global economy is going to be severely affected.

Lesson two: The financial sector must be independent

The maxim was that some institutions were just “too big to fail”. But following the financial crisis, when everything else was brought down with the financial sector, this has been turned on its head. Contemporary thought is that some institutions can in fact be “too big to save”. In this sense, the idea that public money will be used to bail the banks out is unsustainable.

‘The idea that public money will be used to bail the banks out is unsustainable.’

The governor of the Bank of England has been vocal about the fact he believes the financial sector has to prove it can operate independently of the public sector – whatever shocks come its way.

Lesson three: Regulation is back

Deregulation of the financial sector, which harks back to the Thatcher years, is often accused of playing the protagonist role in the financial crash. Whatever truth lies in these accusations, one thing is for sure: the tide on regulation has turned 180 degrees. To prevent a similar crash in the future, the authorities have become much more proactive in responding to risks with financial regulation. One example is the use of “stress testing”. This is the idea that a bank has to go through some form of analysis to establish whether it has enough capital to weather big negative surprises. Stress testing spills over into our daily lives too – before receiving a mortgage offer, individuals now undergo similar financial scrutiny to prove whether or not they can afford a rise in interest rates.

Lesson four: We live in a different economic space

The world today is very different to the one we lived in back in 2007. Yes, the result of increased regulation has meant that banks now have more capital. However, it has also meant that it has become more difficult for households to borrow money as lending criteria are tighter – at a time when interest rates have been at record lows since the crisis. So not only have the rules been tightened significantly, adjusting to this new world has also led to a patchy period of economic recovery. Even in fast-paced disruptive sectors like technology, the changing face of intervention is having an impact. We only need to consider the recent ruling against Uber in London to see that some lessons might indeed have been learnt.

So, 10 years on from the crash, big changes have been made. But what next for the economy? A little further down the track is Brexit. Big question marks still loom and the most obvious one that will impact us in the UK is a future outside of the EU. Before that, the Bank of England has hinted strongly that interest rates could rise in November following a decade without a single hike. Changes are appearing everywhere we look and it is more critical than ever that the remodelled financial system is able to withstand the multitude of challenges emerging on the horizon.