Approaches taken to Combat the 2008 Crash.

Macroprudentials

In the late 2000s after the 2008 crisis began having a domino affect all over the globe there was a macro prudential regulation put in place in order to tackle the poor supervision and regulations previously implemented by the banks in the hope of mitigating the risk to the financial system as a whole as there was a growing consensus among policy makers for the need to reorient previous
regulatory framework towards a new macro prudential perspective.

What are Macroprudentials?

Source: Magyar Nemzeti Bank

Why is the macroprudential regulation necessary? The necessity for the macroprudential comes from the risk of further inflation in the economy and macroeconomic costs of financial stability. It was essential to employ a macroprudential regulation to fill the void negated between the macroeconomic policy and the traditional microprudential  regulation of the financial institutions of the former.

There are two pillars under the financial regulations functions: 1. Prudential Regulation and 2. Financial Conduct. The Prudential Regulation pillar includes the directorates for credit institutions; insurance; and asset management supervision all of which is designed to ensure the financial institutions are suitably equipped to deal with the required regulatory mandates.

Why was a Macroprudential Regulation Essential in the Survival of Banks?

Macroprudential regulations limited the system-wide distress across the world with its ultimate objective of avoiding Gross Domestic Product (GDP) costs from increasing and staying at such high figures which would result in the downfall of more banks and financial institutions had this continued without the intervention of Macroprudential regulations.

Macroprudential policies also include counter cyclical capital requirements which means financial institutions are forced to hold more capital during "booms" aka "the good times" which eventually leads to reduced lending/borrowing and helps mitigate credit bubbles that later can possibly cause havoc to the economy, essentially building a buffer for the future so we don't have a repeat quite like this one. There is theoretical and empirical evidence to back up the long-term economic growth effect of this regulatory method and I believe that the majority of the post-crisis banking regulations are aimed at the banks in the European Union in an attempt to restore stability according to Chaikovska (2019), which is what Europe needs after long periods of uncertainty.