The Memory of Financial Crises: Financial Actors and Global Risk

Project Information

MERCATOR

Grant agreement ID: 884910

DOI

10.3030/884910

Project closed

EC signature date 28 July 2020

Start date 1 December 2020

End date 31 March 2026

Funded under

• EXCELLENT SCIENCE - European Research Council (ERC)

Total cost

€ 2 354 381,00

EU contribution

€ 2 354 381,00

Coordinated by

EUROPEAN UNIVERSITY INSTITUTE
Italy

Periodic Reporting for period 3 - MERCATOR (The Memory of Financial Crises: Financial Actors and Global Risk)

Reporting period: 2023-12-01 to 2025-05-31

Summary of the context and overall objectives of the project

It is usually assumed that financial markets have a short memory: crises are quickly forgotten and excessive risk-taking replaces caution as new business and profit opportunities arise. But are financial crises actually remembered and if so, how, for how long, and by whom? Surprisingly, there has been very little attempt to answer this question, which is very important if we want to understand not only the causes and consequences of financial crises, but how the modern financial system has been shaped.

This project is a step in this direction. It explores the extent to which the memory, or absence of memory, of previous financial crises can explain certain practices within the financial system. This will provide a major contribution to the understanding of the causes of financial crises, in particular the Global Financial Crisis of 2008, by helping to unravel the rationale behind financial actors’ actions and decisions and how they may be connected to their previous experiences.

The project addresses four main questions: How are financial crises remembered? Has the memory of financial crises had an impact on the thinking and behaviour of financial actors? Has a ‘new’ financial elite emerged in the late twentieth and early twenty-first century? What has been the legacy of the Global Financial Crisis?

Using the concept of cultural memory, the project analyses how the most severe financial shocks of the last hundred years (1929-33, 1982, 1997, and 2007-9) have been remembered. The memory of financial crises will be retraced by exploring five interrelated areas, with five objectives in mind: capturing senior bankers’ own views on financial crises; producing a first collective biography of the financial elite in the late 20th and early 21st century; drawing a much clearer picture of the vision of financial crises prevailing in the financial world and its evolution in the second half of the 20th century; throwing a new light on the place of financial crises in the teaching of economics and finance; and opening new perspectives into the history and memory of financial regulation.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

Work has proceeded towards achieving the project’s five main objectives.

First objective, capturing senior bankers’ own view of financial crises. Following initial work (selection of banks and bankers, semi-structured questionnaire), eight interviews of chairmen, CEOs, and CROs of leading European and North American leading banks were conducted.

Second objective: first collective biography of the financial elite in the late 20th and early 21st century. A prosopographical database of financial elites from the 1980s to the financial crisis of 2008 was in the process of being created, offering a historical and transnational perspective.

Third objective: clearer picture of the vision of financial crises prevailing in the financial world. A database of financial press’s articles referring to all the crises included in the project (Great Depression, International Debt Crisis, Asian Crisis and Global Financial Crisis) was in the process of being created.

Fourth objective: the place of financial crises in the teaching of economics and finance. Archival research was carried out at LSE (course summaries, lectures and wider engagements by economists on the topic of education) and Cambridge (examination papers in economics between 1950 and 2000); and economics textbooks (Samuelson, Mankiw) started being analysed, with particular focus on the conception of 'crises'.

Fifth objective: new perspectives into the history and memory of financial regulation. Three case studies were in the process of being analysed: the non-regulation of Over-the-Counter derivatives by the Commodity Futures Modernization Act (CFMA) in the United States in 2000; the shaping of memories of the global financial crisis by the Nobel Committee in its award of the 2022 Economics Memorial Prize to Ben Bernanke, Philip Dybvig and Douglas Diamond; memories of the global financial crisis and the role of central banks in tackling climate change.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

Early significant results, together with methodological developments have been achieved and are pushing the research beyond the state of the art. One such result is the discrepancy existing in senior bankers’ view of financial crises between micro- and macro levels, with the former being more meaningful as far as the thinking and behaviour of financial actors in times crisis are concerned. Another significant result concerns the limits to the internationalisation of the financial elite in the late twentieth and early twenty-first century, whether in terms of board composition or education and training. And a third result reveals that financial crises have not featured prominently in the teaching of economics since the end of the Second World War, in other words including during the years of state intervention and regulation still marked by the experience of the Great Depression.

These results go against conventional wisdom and raise essential questions regarding the relationships between individual memory and collective memory and the significance of the generation factor in the experience of financial crises. They also open the way to new theoretical and methodological approaches, in particular combining collective biography, oral history and cultural history in the study of financial crises.

Pursuing the project’s five objectives along this line of research should produce further results enabling us to better understand the role played by the various facets of the memory of financial crises in the behaviour of financial actors.

James N. Rosenberg, 'Dies Irae', 1929, Lithograph on paper, Smithsonian American Art Museum