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The European banks' role in the financial crisis of 2007-8: a critical assessment

Lysandrou, P. (2022). The European banks' role in the financial crisis of 2007-8: a critical assessment. New Political Economy, 27(5), pp. 879-894. doi: 10.1080/13563467.2022.2038115


Since the outbreak of the financial crisis in 2007, opinion has been divided over whether its root cause was weak regulation and bank funding problems or the pressure of investor demand for US safe assets. New research on the European banks’ role in the crisis may finally help to resolve the issue. Far from being peripheral players in the crisis, European banks were deeply implicated in its causal origins as evidenced by their activities in the two US debt markets that were at the heart of the crisis: those for collateralised debt obligations (CDOs) and for asset backed commercial paper (ABCP). These activities would seem to lend weight to the conclusion that regulation and bank funding issues were the key causal variables in the financial crisis. However, it is a conclusion only made possible by ignoring the pre-crisis connection between the federal funds rate and the rate of ABCP demand from the institutional money market mutual funds (MMMFs). This paper argues that when this connection is closely examined, it turns out that the evidence surrounding the European banks’ role in the financial crisis gives greater weight to the safe asset demand explanation of the crisis.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in New Political Economy on 10 Mar 2022, available at:
Publisher Keywords: European banks; financial crisis; US debt securities markets; US asset backed commercial paper; safe asset demand; federal funds rate; institutional MMMFs
Subjects: H Social Sciences > HG Finance
J Political Science > JF Political institutions (General)
J Political Science > JN Political institutions (Europe)
Departments: School of Policy & Global Affairs > International Politics
SWORD Depositor:
[thumbnail of NPE2021. Revised..Main Text.The European Banks Role in the Finacial Crisis of 2007-8- A Critical Assessment.pdf]
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