Christina Segal-Knowles: Lessons from the pandemic - has the simpler post-2008 financial system held up? And where do we go from here?

Speech by Ms Christina Segal-Knowles, Executive Director for Financial Market Infrastructure Directorate of the Bank of England, at the (virtual) Official Monetary and Financial Institutions Forum, 29 January 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The topic of my talk today is lessons we can draw from the market turbulence we saw in March and April 2020.

But before we get there I want to talk about an earlier crisis.

Let's rewind to 2008. On September 15th, Lehman brothers collapsed taking with it one side of $35 trillion in derivatives contracts. Most of these derivatives were bilateral contracts – a spaghetti bowl of interconnectedness. As Lehman collapsed and others teetered near the edge, no one knew who was holding the bag.

The result was panic, which, as explained by Ben Bernanke, may have been a key driver of the severity of the Great Recession. Its early stages would have been significantly less severe without the confidence collapse on Wall Street.