3.2 A legal perspective on the global financial crisis

When the financial crisis in 2008 quickly affected countries across the globe, the main question asked was, how could that have happened? Governments were quick to issue rescue packages to protect their national banking entities. But the issue was a global one, and national measures had limited impact. They quickly came to realise that changes in the law were needed to prevent a similar crisis occurring again, although these new laws could do close to nothing to tackle many of the impacts of the current crisis. The financial crisis impacted on many different areas of law and forced some to grow closer together than was envisaged before. Financial law and regulations was not viewed to have any relation to constitutional or public law, for example. The crisis challenged that, and estates were keen to develop new laws to protect their economies. They had to find a way to bring together these different areas of law in order to regulate effectively. Every financial crisis leads to specific legal reforms once those involved in the debate agree the main contributing factors to the crisis. Looking at the USA for example, the Great Depression of 1933 led to a new Banking Act and the creation of the Federal Deposit Insurance Corporation. In 2008, lawmakers responded with the Dodd-Frank Act, which completely reorganised the way finances were regulated in the USA. In the UK, the Banking Act 2009 introduced specific mechanisms for dealing with banks and financial difficulty. Varying interim protection schemes were issued to allow the UK to support struggling institutions through state aid offerings. Law is a contributing factor to a financial crisis, as it will never be able to regulate for every possible scenario. Law is developed when a need for regulation becomes visible and will only ever be able to prevent the same event from occurring again. We do know that the 2008 crisis was not the first financial crisis. But laws passed in similar situations before prevented it from occurring for the same reasons. Any future financial crises will not happen in the same way as it did in 2008, as new laws are preventing specific contributing factors. But they are not able to prevent a crisis occurring for other reasons.