8 - Into the Upswing

Summary

Chapter 8 traces the effect of the newly implemented measures into the upswing of the cycle from 2013 onwards. While early warning frameworks detected a cyclical credit expansion to corporations and to the housing sector, anti-cyclical measures were often hemmed in by the political resistance, both by ministries of finance and the financial industry. This opposition slowed and reduced the degree of anti-cyclical action taken, limiting its mitigating effect. Similarly, I show how the macro-prudential concerns over the growth and transformation of the shadow banking sector from 2013 onwards led to attempts to limit their growth and remove the structural fragilities that threatened the financial system with both a procyclical expansion of this sector in good times and its potentially calamitous decline in bad times. Fueling this procyclical upswing with their massive quantitative easing programs, central banks found themselves unable to rein in these structural frailties, facing once more extensive opposition to any regulatory changes. In turn, these structural frailties, which materialized episodically in bouts of illiquidity, forced central banks to backstop these markets.