NATIONAL ECONOMICS UNIVERSITY  

SCHOOL OF ADVANCED EDUCATION PROGRAMS

GROUP DISCUSSION REPORT

TOPIC: The Global Financial Crisis (GFC) is a one-off event - It will not
happen again.
GROUP: 2 (For)
MEMBER OF GROUP 2:
Phạm Thị Hoài Thu 11207048
Lê Thu Hà 11201167
Hà Kiều Anh 11204286

Phạm Linh Chi 11200620

Đào Quốc Việt 11208462
Vũ Hoàng Giang 11205047
Nguyễn Mai Linh 11202195
Nguyễn Phương Thảo 11203671
Nguyễn Vũ Phương Nam 11202683

Hanoi, November 2022

Table of Contents

I. INTRODUCTION............................................................................1
1. Definition........................................................................................................1
2. Brief news.......................................................................................................1
2.1. Summary of the 2008 Global Financial Crisis........................................1
2.1.1. The cause of Global Financial Crisis..............................................1
2.1.2. Impact of GFC on The World and Vietnam....................................2
2.2. Current moves to prevent Global Financial Crisis.................................2
II. ARGUMENT 1: MORE STRICT REGULATIONS HAVE
BEEN APPLIED TO IMPROVE THE SAFETY OF FINANCIAL
SYSTEM 3
1. The 2010 Dodd-Frank Act put new guardrails around the banking
sector...............................................................................................................3
1.1. Definition:...............................................................................................3
1.2. The 2010 Dodd-Frank Act ‘s key provisions...........................................3
2. Credit risk retention requirement requires securitized product
creators...........................................................................................................4
3. Asset-backed Securities Reform Rules........................................................5
III. ARGUMENT 2: LOAN UNDERWRITING STANDARDS
HAVE BEEN ENHANCED................................................................................6
1. The Ability to Repay/ Qualified Mortgage Rule........................................6
2. Regulators requiring banks to meet much higher standards in the
amount and quality of capital on their balance sheets and in the ways
they assess and manage their financial risks..............................................7
2.1. Basel III: International regulatory framework for banks.......................7
2.2. Higher capital requirements..................................................................7
2.3. Additional capital buffers....................................................................8
2.4 How can banks adjust?........................................................................8
IV. ARGUMENT 3: THE INTERNATIONAL ECONOMIC
GOVERNANCE HAS BEEN STRENGTHEN................................................8
1. The reformation of The International Financial Institutions established
by the framework of the Bretton Woods agreements: The World Bank
and the International Monetary Fund........................................................8
1.1. The World Bank....................................................................................9
1.2. The IMF.................................................................................................9
2. The strengthening of global financial regulation and supervision.........10
2.1. The Financial Stability Board (FSB)....................................................10
2.2. The Basel Committee on Banking Supervision (BCBS)......................10
V. CONCLUSION...............................................................................11
VI. REFERENCES...............................................................................11
1. INTRODUCTION

2. Definition

The global financial crisis (GFC) refers to the period of extreme stress in
global financial markets and banking systems between mid 2007 and early 2009.
During the GFC, a downturn in the US housing market was a catalyst for a
financial crisis that spread from the United States to the rest of the world
through linkages in the global financial system.

Many banks around the world incurred large losses and relied on
government support to avoid bankruptcy. Millions of people lost their jobs as
the major advanced economies experienced their deepest recessions since the
Great Depression in the 1930s. Recovery from the crisis was also much slower
than past recessions that were not associated with a financial crisis.

3. Brief news

3.1. Summary of the 2008 Global Financial Crisis

3.1.1. The cause of Global Financial Crisis
The 2008 global financial crisis (GFC) was the worst economic disaster
since the Great Depression of 1929. It occurred despite the efforts of the Federal
Reserve and the U.S. Department of the Treasury. The Fed was forced to take
emergency measures to save banks from the risk of collapse due to the burden of
mortgage loans. Starting in the US, the financial crisis quickly spread to Europe
and other regions.
The cause of the 2008 GFC is believed to be that financial institutions in
the US real estate market began to offer risky mortgage loans to rescue real
estate buyers. Mortgage loans are aimed at low-income homebuyers, with very
high lending risk. At the head of those financial institutions was Lehman
Brothers - the collapse of this bank marked the beginning of the crisis. The
bankruptcy of the more than 160-year-old American investment bank was
indicative of the biggest sell-off in American financial history.
After the GFC broke out, the US government launched bailouts for
financial institutions as well as applying fiscal and monetary policy to prevent
the collapse of the global financial system.
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 3.1.2. Impact of GFC on The World and Vietnam
However, those solutions and fiscal policies were too late, the GFC spread
to countries around the world, especially the European Union such as Germany,
the UK, France as well as other countries. This crisis has had a significant
impact on the global economy, with more than 30 million people unemployed,
increasing rates of homelessness and suicide.
The 2008 GFC had a significant impact on Vietnam's economy. However,
at the time of 2007 - 2008, Vietnam's economy was still limited in terms of
openness, so its impact on Vietnam was considered insignificant but still had
some notable points:
 About commerce, the United States, Japan and EU are major and
important export markets for Vietnam. So the GFC led to a sharp
decrease in the demand for imports from Vietnam
 About foreign investment, the GFC has affected foreign direct investment
(FDI) and official development assistance (ODA).
 About financial activities and money markets, the 2008 GFC had a
negative impact on the money market, especially the stock market.
VNIndex dropped continuously below 350 points.

3.2. Current moves to prevent Global Financial Crisis

The 2008 global financial crisis left serious consequences that took many
years to recover. The world is currently being pushed into a rather worrying
situation when the epidemic has not completely ended, the Russia-Ukraine war
is still lingering and China has not yet abandoned the Zero Covid policy.
However, the market is always learning from the past and central banks are also
trying to defend to avoid instability in the financial system.
Countries are always aware and observing other countries to avoid the
risk of financial crisis. For example, when Britain fell into this situation, it gave
a lesson to other leaders, that they need to be more cautious. Britain may be the
first, and it is a warning to other countries to better handle financial problems.
Europe has now opted to increase spending, rather than reduce taxes, with a
$735 billion stimulus package underway. The US has suspended financial
support measures, after the Senate opposed President Joe Biden's "Build Back

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Better" plans along with record-high inflation as a result of the massive stimulus
package that the country has received launched last year. (Huyen Chi, 2022)
Even the UK itself had to take timely steps to prevent the financial crisis
from erupting, culminating in the sacking of the Chancellor of the Exchequer
and then Prime Minister Liz Truss when she was only in this position for 44
days. The new UK Prime Minister Rishi Sunak declared: "I was elected to
correct mistakes". (Thanh Tam & Nhu Tam, 2022)

4. ARGUMENT 1: MORE STRICT REGULATIONS HAVE BEEN

APPLIED TO IMPROVE THE SAFETY OF FINANCIAL SYSTEM

1. The 2010 Dodd-Frank Act put new guardrails around the banking
sector.

1.1. Definition:
The Dodd-Frank Act (or Dodd-Frank Wall Street Reform and Consumer
Protection Act) is legislation that was passed by the U.S. Congress in response
to financial industry behavior that led to the financial crisis of 2007-2008. In
particular, it established a number of new government agencies tasked with
overseeing the various components of the law and, by extension, various aspects
of the financial system. (Hayes, 2022)
1.2. The 2010 Dodd-Frank Act ‘s key provisions
Financial stability: The act encompasses a wide variety of different
regulations and laws, all of which strive for one goal: “To promote the financial
stability and to protect consumers from abusive financial service practices”: In
fact, under the Dodd-Frank Act, the Financial Stability Oversight Council and
the Orderly Liquidation Authority monitor the financial stability of major
financial firms. The law also provides for liquidations or restructurings via the
Orderly Liquidation Fund. This fund was established to assist with the
dismantling of financial companies that have been placed in receivership to
prevent tax dollars from being used to prop up such firms. The council has the
authority to break up banks that are considered so large as to pose systemic risk.
It can also force banks to increase their reserve requirements.

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 Consumer Financial Protection: The Consumer Financial Protection
Bureau (CFPB), established under Dodd-Frank, was given the job of preventing
predatory mortgage lending and helping consumers to understand the terms of a
mortgage before agreeing to it. This reflected the widespread sentiment that the
subprime mortgage market was the underlying cause of the 2007–2008
catastrophe. The CFPB deters mortgage brokers from earning higher
commissions for closing loans with higher fees and/or higher interest rates. It
requires that mortgage originators not steer potential borrowers to the loan that
will result in the highest payment for the originator.
The CFPB also governs other types of consumer lending, including credit
and debit cards, and addresses consumer complaints. It requires lenders,
excluding automobile lenders, to disclose information in a form that is easy for
consumers to read and understand. Such an example is the simplified terms now
on credit card applications.
Restrictions on how banks can invest, speculative trading limits, and
proprietary trading elimination: Banks are not allowed to be involved with
hedge funds or private equity firms, which are considered too risky. To
minimize possible conflicts of interest, financial firms are not allowed to trade
proprietarily without sufficient "skin in the game.”
The act also contains a provision for regulating derivatives, such as the
credit default swaps that were widely blamed for contributing to the 2007–2008
financial crisis. Dodd-Frank set up centralized exchanges for swaps trading to
reduce the possibility of counterparty default. It required greater disclosure of
swaps trading information to increase transparency in those markets.

2. Credit risk retention requirement requires securitized product

creators

Securitization is the process of bringing collateral to the secondary market

for exchange to buy/sell or trade. This will help turn illiquid assets into highly
liquid securities.
In the 1980s, American banks thought that the traditional lending process
was too cumbersome and inefficient, so they began to simplify the loan process

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with the amount of paperwork reduced to a minimum and lending decisions are
primarily based on the customer's credit score.
Thanks to the securitization of loans of the same nature, interest rate and
term of commercial banks, it helps to circulate capital in the market faster, not
having to depend on existing loans. In particular, the securitization process also
attracts and exploits many small and idle capital sources in the economy,
promoting flexible cash flow, creating profitability, and developing the
economy.
Support borrowers to recover capital early, reduce costs and increase
profitability when reinvesting. On the other hand, banks owning securities,
which are entitled to both principal and interest divided monthly, should recover
faster than owning term bonds.
Creating a variety of securities products to supply to the financial market,
helping customers have more choices, improving liquidity, and regenerating
new capital. At the same time, it helps to reduce risks caused by debts and
improve credit quality. Limiting payment risks because of the participation of
debt managers, special entities and credit rating agencies advising on cash flow
restructuring. Thereby, improving the financial credit rating compared to the
original debt. Ensure transparent financial declaration, meet strict standards on
debt ratio and capital adequacy ratio in business activities.
The term “Revolving Pool has been substituted for “Master Trust” to
accommodate revolving deals in other than trust form. The Reproposed Rules
required a sponsor to retain a seller's interest of not less than 5%. The Final
Rules require the sponsor to maintain a seller's interest of not less than 5%. The
Final Rules amend the definition of “revolving pool securitization” to exclude
the monetization of excess spread. The Final Rules permit Sponsors to satisfy
the risk retention requirement by holding a seller's interest that is either Pari-
passu or Partially subordinate to one or more series of investor interests issued,
or by holding a subordinate horizontal interest, and permit Sponsors to use cut -
off dates in establishing the outstanding value of the revolving pool.

3. Asset-backed Securities Reform Rules

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 In August 27, 2014, The US Securities and Exchange Commission
adopted Adopts Asset-Backed Securities Reform Rules
Asset-backed Securities Reform Rules are created by buying and bundling
loans, such as residential and commercial mortgage loans, and auto loans and
leases, and creating securities backed by those assets for sale to investors. A
bundle of loans is often divided into separate securities with varying levels of
risk and returns. Payments made by the borrowers on the underlying loans are
passed on to investors in the ABS.
The rules provide enhanced disclosures, transparency, and reporting to
better protect investors in securitization market. Also, to standardize asset-level
information for securitized debt backed by various assets including residential
mortgages, commercial mortgages and auto loans and give investors more time
to review and consider a securitization offering. (U.S Securities and Exchange
Commission, 2014)

4. ARGUMENT 2: LOAN UNDERWRITING STANDARDS HAVE

BEEN ENHANCED

1. The Ability to Repay/ Qualified Mortgage Rule

The financial crisis was primarily caused by deregulation in the financial

industry. That permitted banks to engage in hedge fund trading with derivatives.
Banks then demanded more mortgages to support the profitable sale of these
derivatives. They created interest-only loans that became affordable to subprime
borrowers. (Kagan, 2021)
The Ability to Repay or Qualified Mortgage Rule was issued by the
CFPB and took effect on Jan. 10, 2014. The ATR/QM Rule requires a creditor
to make a reasonable, good faith determination of a consumer’s ability to repay
a residential mortgage loan according to its terms. It also defines several
categories of “qualified mortgage” loans, which obtain certain protections from
liability. (Consumer Financial Protection Bureau, 2020)
A qualified mortgage is a mortgage that meets certain requirements for
lender protection and secondary market trading under the Dodd-Frank Wall
Street Reform and Consumer Protection Act.

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 To be eligible for a qualified mortgage, borrowers must meet certain
requirements; these requirements are meant to determine a borrower's ability to
repay their mortgage.
Qualified mortgage rules were developed to help improve the quality of
loans issued in the primary market (and that ultimately may become available
for trading in the secondary market). The majority of newly-originated
mortgages are sold by the lenders into the secondary mortgage market. In the
secondary mortgage market, newly-originated mortgages are packaged into
mortgage-backed securities and sold to investors, such as pension funds,
insurance companies, and hedge funds. Only certain qualified mortgages are
eligible for sale in the secondary market.

2. Regulators requiring banks to meet much higher standards in the

amount and quality of capital on their balance sheets and in the ways
they assess and manage their financial risks.

Balance sheets are crucial because they inform banks regarding your
business's qualification for extra loans and credit. In order to better understand
where their money will go and what they can expect to receive in the future,
current and potential investors can benefit from balance sheets.
2.1. Basel III: International regulatory framework for banks
In response to the financial crisis, the finance ministers of the G20 nations
decided on harsher banking system regulation, better known as the Basel III
Accord, which includes higher capital requirements for banks on both a risk-
weighted and non-weighted basis (the leverage ratio). As of 2022, it is still in the
process of implementation.
Basel III is an international regulatory agreement that brought about a
number of changes intended to enhance banking industry regulation,
supervision, and risk management. (Nhịp Cầu Đầu Tư, 2014)
2.2. Higher capital requirements
Basel III demands that a bank must maintain a total capital ratio of at least
8% of its risk-weighted assets (RWAs). The minimum capital a bank must
possess in accordance with the risk profile of its lending activities and other
assets is established using risk-weighted assets. This is done to lessen the
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likelihood of insolvency and safeguard depositors. A bank requires more capital
on hand the more risk it is exposed to. For each type of bank asset, a risk
assessment is used to determine the capital requirement. (Bruinshoofd, 2016)
New leverage and liquidity rules were also implemented by Basel III in an
effort to protect against excessive and hazardous lending while ensuring that
banks have enough liquidity during times of financial stress. (Bloomenthal,
2022)
2.3. Additional capital buffers
There will also be a 2.5% capital conservation buffer needed in addition
to the minimum capital requirement of 8.0%. Banks are required to retain more
high-quality capital because of this cushion. This buffer can be used to absorb
unexpected losses during hard times economically. A bank is not permitted to
issue dividends or bonuses if this buffer is not maintained. As a result, Basel
III's required minimum capital ratio is 10.5%.
2.4 How can banks adjust?
Increase its capital base: Approximately, increasing the capital base can
be accomplished by issuing additional shares and/or maintaining earnings, the
latter being achieved, for example, through cost-cutting or shareholder dividend
payout.
De-risking its balance sheet: By replacing riskier businesses with safer
ones, a bank can reduce the average risk weight that applies to its activities and
reduce the amount of equity that is required.
Reduce its total assets: Selling assets or slowing the rate at which new
loans are being originated (credit rationing). (Tuovila, 2020)

3. ARGUMENT 3: THE INTERNATIONAL ECONOMIC

GOVERNANCE HAS BEEN STRENGTHEN.

1. The reformation of The International Financial Institutions established

by the framework of the Bretton Woods agreements: The World Bank
and the International Monetary Fund

The Bretton Woods Institutions - the IMF and World Bank - have an
important role to play in making globalization work better. They were created in

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1944 to help restore and sustain the benefits of global integration, by promoting
international economic cooperation. Today, they pursue, within their respective
mandates, the common objective of broadly shared prosperity.
1.1. The World Bank
It has undergone changes in its organization model to cope with the
impact of the financial crisis. Its operations have supported broad-based efforts
to expand economic opportunity, improve human development, and strengthen
governance in a diversity of countries. (World Bank Group, 2019)
Over 2008 - 2010, 85% of operations sought to expand economic
opportunity. For example, through infrastructure and economic reform, it
showed relatively high effectiveness.
In 2014, the World Bank reformed its operating model to enhance its
ability to deliver services to clients. Structurally, the new matrix replaced the old
anchors and networks with two different types of technical groups. First, Global
Practices (GPs) are responsible for delivering technical work within their
respective areas such as health, transport, agriculture, governance, and so on to
country clients. And second, five Global Theme Groups (GTs) are responsible
for setting strategic directions internally; supporting operational mainstreaming;
engaging and convening external partners on major cross-cutting priority areas.
(Girishankar)
1.2. The IMF
The IMF has implemented many reforms in recent years, designed to
strengthen its cooperative nature and improve its ability to serve its membership.
The IMF has taken action to strengthen economic governance. For
instance, it promoted the use of standards and codes as vehicles for sound
economic and financial management and corporate governance. (Staff, 2002)
It has worked to safeguard the stability and integrity of the international
financial system as a global public good. In particular, the joint IMF - World
Bank Financial Sector Assessment Program (FSAP) is at the core of efforts to
strengthen financial sectors and combat money laundering in member countries.
Also, it has become much more flexible in the way it lends money to
improve the Fund’s ability to avert financial crises. After many years of failed
attempts, the IMF has succeeded in setting up lending facilities that are more

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suitable for countries with good track records and solid commitments to
implement good policies on their own. (ECB, 2011)

2. The strengthening of global financial regulation and supervision

2.1. The Financial Stability Board (FSB)

On the institutional side, the Financial Stability Board (FSB) which is the
new successor to the Financial Stability Forum (FSF) was established in April
2009. It brings together national authorities responsible for financial stability in
significant international financial centers, international financial institutions,
sector-specific international groups of regulators and supervisors, and the
committees of central bank experts.
The FSB is helping to improve dialogue among the authorities responsible
for financial sector issues and the implementation, where appropriate, of
recognized standards and corrective policies:
 The commitment made by all of its members to undergo periodic peer
reviews
 The FSB has set up a process of monitoring compliance with
international regulatory and supervisory standards for cooperation and
information-sharing
 Continue to reform and modernize the governance structure of the
institution following calls to make it more legitimate and representative
2.2. The Basel Committee on Banking Supervision (BCBS)
On the regulatory side, the agreement reached by the Basel Committee on
Banking Supervision (BCBS) on the new bank capital and liquidity framework
increases the resilience of the global banking system
In July and September 2010, the Group of Governors and Heads of
Supervision, the oversight body of the Basel Committee on Banking
Supervision, endorsed the design and calibration of a package of proposals to
strengthen global capital and liquidity regulations. This package, which is also
referred to as Basel III, includes measures aimed at strengthening the resilience
of the financial sector by improving the quality and quantity of capital, as well
as introducing additional capital requirements in the form of capital buffers, a
supplementary leverage ratio, and new rules for a liquidity risk framework.
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3. CONCLUSION

It is now just over 10 years since the date that people most associate with the
Global Financial Crisis (GFC), there have been quite a number of articles
written in recent months looking back at that time and the period leading up to
it, concerning the crisis may on the verge of happening. However, there are solid
arguments reinforce that The Global Financial Crisis (GFC) is a one-off event -
It will not happen again: More strict regulations have been applied to improve
the safety of financial system; Loan underwriting standards have been enhanced;
The international economic governance has been strengthen.

4. REFERENCES

Bloomenthal, A. (2022, July). Basel III: What It Is, Capital Requirements, and
Implementation. From Investopedia:
https://www.investopedia.com/terms/b/basell-iii.asp
Bruinshoofd, A. (2016, March). Converging to higher capital requirements:
adjustment strategy and lending impact. From RaboResearch - Economic
Research:
https://economics.rabobank.com/publications/2016/march/converging-to-
higher-capital-requirements-adjustment-strategy-and-lending-impact/
Consumer Financial Protection Bureau. (2020). Ability-to-Repay/Qualified
Mortgage Rule. From Consumer Financial Protection Bureau:
https://www.consumerfinance.gov/rules-policy/final-rules/ability-to-pay-
qualified-mortgage-rule/
ECB. (2011). The financial crisis and the strengthening of global policy
cooperation.
Girishankar, N. (n.d.). Why, What, and How of World Bank Group Strategy
What Evaluations Tell Us about the Promise and Potential Pitfalls of
Reform. Independent Evaluation Grou.
Hayes, A. (2022, September). Dodd-Frank Act: What It Does, Major
Components, Criticisms. From Investopedia:
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 https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-
reform-bill.asp
Huyen Chi. (2022, October). Khủng hoảng tài chính Anh: Lời cảnh báo cho các
nền kinh tế toàn cầu. From CafeF: https://cafef.vn/khung-hoang-tai-chinh-
anh-loi-canh-bao-cho-cac-nen-kinh-te-toan-cau-20221002204815255.chn
Kagan, J. (2021, December). Qualified Mortgage. From Investopedia:
https://www.investopedia.com/terms/q/qualified-mortgage.asp
Nhịp Cầu Đầu Tư. (2014, August). Basel III và xu hướng thắt chặt quy định
trong lĩnh vực ngân hàng. From Nhịp Cầu Đầu Tư.
Staff, I. (2002, March). Globalization: A Framework for IMF Involvement.
From International Monetary Fund:
https://www.imf.org/external/np/exr/ib/2002/031502.htm?
fbclid=IwAR2R3HnlRwFmmy73_w61YMEc3DET7obU4E2T2U91uJTnj
BLhanQgIvpZa1M
Thanh Tam, & Nhu Tam. (2022, October). Tân Thủ tướng Anh: Tôi được bầu
để sửa chữa sai lầm. From VN Express: https://vnexpress.net/ong-sunak-
duoc-vua-anh-bo-nhiem-lam-thu-tuong-4527846.html
Tuovila, A. (2020, December). Risk-Weighted Assets: Definition and Place in
Basel III. From Investopedia:
https://www.investopedia.com/terms/r/riskweightedassets.asp
U.S Securities and Exchange Commission. (2014). SEC Adopts Asset-Backed
Securities Reform Rules. From U.S Securities and Exchange Commission:
https://www.sec.gov/news/press-release/2014-177
World Bank Group. (2019). Knowledge Flow and Collaboration under the
World Bank’s New Operating Model. The World Bank.

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