Overall, the system is much more solid from a financial perspective, and the provisions for failure are much more defined at the regulatory level. As such, a repeat of the crisis looks unlikely. This makes sense because you rarely get hit by the bus you are watching for. After 2008, regulators and the banks themselves are certainly looking out for the risk factors that clobbered them back then.
Not Out Of The Woods Yet
We are not completely out of the woods, however. The orderly liquidation procedures have never been tested in a crisis environment. As part of the reforms, the ability of regulators to make up policy on the fly has been curtailed. Plus, there are certainly risks in the system—although not the same ones we saw in 2008. At some point, those risks will surface, and we will see another crisis. But it will not look like that of 2008.
This, however, is actually normal. If you look back at history, financial crises are a pretty regular feature of life. The difference in 2008, though, was that the crisis was a real one. It shook the system as a whole, which was something we had not seen in decades. As of now, the financial system is solid enough that the next “crisis” will not do the same.
So, Could It Happen Again?
While we will certainly see financial problems, probably in the next recession, the great financial crisis is likely to remain as unique as the Great Depression. Could it happen again? In theory, yes. In practice, probably not.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by Brad McMillan.