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All Fall Down

Debt, Deregulation and Financial Crises

Jane D’Arista

All Fall Down traces the ways in which changes in financial structure and regulation eroded monetary control and led to historically high levels of debt relative to GDP in both developed and emerging economies. Rising stocks of debt drove the global financial system into crisis in 2008 when households, businesses, financial institutions and the public sector in some countries strained to generate sufficient income for debt service. The stagnation and fall in asset prices that followed began the process of unwinding that led to a run on the financial sector by the financial sector.
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Chapter 2: The euro market erodes US financial structure

Jane D’Arista

Extract

The shift from a bank-based financial system to a market-based system began with the creation of the unregulated Eurocurrency market in the 1960s. It accommodated the key currency international monetary system by providing foreign exchange and cross-border transactions denominated in currencies outside the borders of the countries that issued them. Institutions’ reliance on borrowing from, lending to, and dealing in derivatives with other financial institutions created a web of interconnectedness in the external market that was first tested by the failure of Franklin National Bank in 1975.

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