In 2008, the world experienced a financial meltdown, now known as “once in a century credit tsunami”. Before the 2008 crisis, the US was experiencing a housing boom, which was fuelled by an unregulated shadow banking system. The lack of effective regulation and oversight by the Federal Reserve fuelled the crisis further, many large financial institutions were struggling to manage own risks. Consequently, creditors and investors lost trust and confidence in these institutions. More specifically, concerns if these institutions would be able to meet short-term liabilities and concerns over their liquidity. Notably, the US investment bank “the iconic” Lehman Brothers filed for bankruptcy in the year 2008. Finally bursting the financial bubble, and creating a disaster, which led people to lose trust and confidence towards banks more so, central banks.
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