History shows that there are two things we can be sure of when it comes to financial crises: there will be another one, and the next one won’t be the same as the last.
That’s a big problem because they can be very damaging.
A financial crisis causes so much harm because people rely on financial institutions every day: banks provide debit cards so we can pay for things more easily; pension providers help us plan for the future; and insurance companies provide cover in the event that our belongings are damaged, lost or stolen.
When a crisis hits, the after-effects can be felt for many years after. Looking at various examples throughout history, one estimate places the total economic cost of a typical financial crisis at around 75% of GDP. That’s equivalent to £21,000 for every person in the UK.
Take the 2007-08 financial crisis, which was one of the most severe ever seen. Some financial markets effectively closed. Others were so badly damaged that businesses and households were unable to get the finance they needed. As a result the UK economy suffered the deepest recession since the Second World War.
That led to a real impact on wages, jobs and access to credit for people across the country.