# data[].attributes.headline
CNBC: "How The Yield Curve Predicted Every Recession For The Past 50 Years"

# data[].attributes.subject
CNBC: "How The Yield Curve Predicted Every Recession For The Past 50 Years"

# data[].attributes.body
I. Recessions are directly tied to the "yield curve" and thus it is an effective indicator for upcoming and past recessions.

II. This source provides a specific correlation between a recession and another economic trend, and claims that the behavior of one directly influences the other.

# data[].attributes.attachment_link.title
How The Yield Curve Predicted Every Recession For The Past 50 Years

# data[].attributes.headline
Harvard Business Review: "How to Survive and Thrive Afterward" 

# data[].attributes.subject
Harvard Business Review: "How to Survive and Thrive Afterward" 

# data[].attributes.body
I. Recessions are primarily caused by bubbles or sudden changes in the economy; preparation and good leadership in businesses may utilize recessions as an opportunity

II. This source personalizes the effects of a recession on businesses and individuals and the best reaction to a recession as either entity

# data[].attributes.attachment_link.title
How to Survive a Recession and Thrive Afterward

# data[].attributes.attachment_link.description
According to an analysis led by Ranjay Gulati, during the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies studied fared very badly: They went bankrupt, went private, or were acquired. But just as striking, 9% of the companies flourished, outperforming competitors by at least 10…

# data[].attributes.headline
Stanford University: "Why Recessions are Misunderstood" 

# data[].attributes.subject
Stanford University: "Why Recessions are Misunderstood" 

# data[].attributes.body
I. Recessions are complex and hard to predict and are caused by economic turbulence and public confidence in the economy.

II. This source provides context to recessions in greater economic trends, and contextualizes recessions by their surrounding growth or stagnation.

# data[].attributes.attachment_link.readable_text
While recessions are painful, they are only temporary interruptions to the economy, says John Cochrane, an economist at Stanford's Hoover Institution, arguing that people should be paying more attention to long-term economic growth, which in the U.S. is currently stagnating.

Here, Cochrane discusses what people, economists included, understand and don't understand about recessions, what is over and underestimated about them, and why it's important to look at the bigger picture. Rather than focus on quarterly changes to growth rate, which is how recessions are currently gauged, the long-run growth of the economy matters more.

Moreover, what causes recessions is not entirely clear and a topic of debate, Cochrane said. He also addresses the relationship between inflation and recession, stagflation - a recession with inflation, the role the Federal Reserve (the Fed) plays in managing the health of the economy, and what other factors people should look at to gauge that, such as a labor force participation, which is the number of people employed or actively seeking employment (instead of unemployment rates, which focuses on the number of people who are not employed and looking for work).

Cochrane specializes in financial economics and macroeconomics. He recently authored a book about inflation, The Fiscal Theory of the Price Level (Princeton University Press, 2022).
This interview has been edited for length and clarity. Fears about a recession have loomed for months, years even. Why isn't the U.S. in a recession yet?
One might say that fears about a recession have loomed for centuries! But like disease, fear of recession does not itself cause a recession.
What do people - economists included - understand and don't understand about recessions?
We know they happen and seem to be a regular phenomenon. In some sense, recessions look much alike. Economic activity declines throughout the economy and all over the country, unlike, say, a bad snowstorm that affects only one area or a boom in one industry like tech. Durable goods, investment, housing, and things you borrow to finance, all get hurt much more; services and nondurable goods (food) fall much less. Employment falls, unemployment rises.

Recessions often happen when something bad happens - a financial crisis (1933, 2008), a large monetary or credit policy tightening, a disruption in oil markets (1973, 1979), or the moment we find out that a boom has run its course (1929, 1999). But those are often amplifying factors rather than complete causes, as those events sometimes don't lead to recessions.
What causes recessions?
Just what causes recessions and drives these mechanisms is a bit contentious. The fact that every business falls at the same time leads to the Keynesian idea that "lack of demand" is at fault. But why should people wake up one day and just want to spend less? Why should that be the same everywhere in the country? The economy is surely more complex than a one-dimensional "stimulus" theory describes.

One cause of recession is the natural turbulence of some businesses expanding and others contracting. 2008 was a bit due to the fact that no, we aren't all going to move to Las Vegas, so we need to stop building houses there. 1999 was in part the end of the first round of the internet. It seems pretty clear the end of this round of internet development is at hand, and as big bets on endless growth go bust, and as people move away from one kind of job to another, there can be at least a slowdown.

Even famous recessions in 2008 and 1929 show a decided slowing of economic activity before the financial panic. The financial panic is at least partly caused by the growth slowdown. Risky companies betting on years of continued growth are suddenly worth less, as we're seeing right now in tech. If banks are overexposed to those businesses, that feedback can make matters worse.
What else do people often misunderstand about recessions?
People also misunderstand the nature of unemployment. Even in recessions, most people get jobs relatively quickly. The real issue is labor force participation, the declining number of people who are even looking for work, in good times and bad.

"Recessions" are when income is going down, and the unemployment rate is rising. But we are still in "bad times" when income is low and unemployment is high. That persists a good bit past a "recession." I think if we could do it over again we'd define recessions in terms of low levels of GDP and high levels of unemployment, not growth rates.

The other thing most people get wrong is to dramatically overstate recessions, painful as they are, in the big scheme of things. A bad recession might lower income by 5% for a few years. But long-run growth overwhelms such changes. In 1950, average income was under $15,000 per year, in 2012 dollars. Now, it's $60,000, in 2012 dollars. That's huge.

Currently, stagnant growth is our big problem. Long-run growth of the economy matters much more than year-to-year growth rates. Recessions are painful interruptions, but we should be paying much more attention to long-run growth.

I asked John Taylor this a few months ago, and I'd be curious to get your take on it too: What is the relationship between inflation and recession? Why does the Fed have to aggressively raise interest rates to end inflation?

There is definitely a correlation between inflation and recessions. Inflation tends to ease in a recession, and accelerate in a boom. The Fed is counting on this effect, as inducing a bit of recession is its only tool right now. (Or inflation really comes from fiscal policy, and the Fed is being asked to counteract that.) But that's not always and everywhere. Sometimes we have stagflation - a recession with inflation. That is much more common across the rest of the world than in the U.S. Countries in trouble - that often includes fiscal trouble for their governments - tend to have inflation in bad times, not just in good times. That mechanism could be coming to the U.S. soon.

Right now, the worry is that the Fed and other central banks, in their efforts to fight inflation, will tighten money and credit to the point that it causes a recession. That is, indeed, much of the point of the Fed's actions. The standard story for how the Fed affects the economy is that the Fed slows the economy down, pushing it toward recession, and specifically slowing down parts of the economy that depend on cheap credit, and that this economic slowdown reduces inflation. The hope is that the Fed can add just enough recessionary force to offset inflation, but not so much as to actually see a recession. The fear is that it will overshoot.

But lots of other forces can go wrong. Rising interest rates cause a lot of financial trouble for businesses that, once again, have set themselves up hoping for perpetually free borrowing.

There are lots of other episodes in which inflation does go away on its own. In my view, we have a one-time inflation caused by the one-time fiscal blowout of the pandemic. If nothing bad happens, in particular no additional fiscal blowout, inflation will slowly ease without the Fed having to cause a recession like we saw in the early 1980s. If the U.S. returned to a strong supply-side growth policy, that would help too. But I may be wrong, and bad shocks could surely come.
Could there be any spillover effects if there is a recession elsewhere in the world, such as in the eurozone, the U.K., or China?
Yes. We live in a global economy, like it or not. China seems in danger [of recession], and surely there will be some spillover. Europe is in for a hard winter, and both energy problems and its government debt problems could cause trouble and spill over to the U.S.

Cochrane is the Rose-Marie and Jack Anderson Senior Fellow of the Hoover Institution at Stanford. He is a senior fellow of SIEPR and a professor of finance (by courtesy), and of economics (by courtesy) at the Graduate School of Business. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the CATO Institute.

# data[].attributes.attachment_link.title
Why recessions are misunderstood | Stanford News

# data[].attributes.attachment_link.description
While recessions are painful, they are only temporary interruptions to the economy, says John Cochrane, an economist at Stanford's Hoover Institution, arguing that people should be paying more attention to long-term economic growth, which in the U.S. is currently stagnating.

# data[].attributes.body
I. Recessions are a result of human psychology.

II. A simplified argument for the causes and effects of a recession that directly defines key vocabulary.

# data[].attributes.body
I. Recessions are a natural and predictable part of the growth of the economy.

II. longer comprehensive source, a good explanation of recessions from a macro economics perspective, and the general trends of recessions throughout time.

# data[].attributes.headline
IMF: "Recessions- When Bad Times Prevail" 

# data[].attributes.subject
IMF: "Recessions- When Bad Times Prevail" 

# data[].attributes.body
I. Multiple factors leading up to a Recession including inflation or poor fiscal policies in government and financial institutions.

II. Although it does not provide a strong argument the source provides an effective overview of the general history, definition, and insight into the workings and effects of a recession.

https://www.imf.org/external/pubs/ft/fandd/basics/recess.htm

# data[].attributes.attachment_link.readable_text
Download PDF

BACK T O BASICS COMPILATION

It is a sustained period when economic output falls and unemployment rises

Following the onset of the recent global economic crisis, much of the news, especially in advanced economies, was dire. Unemployment was rising, company profits were falling, financial markets were tumbling, and the housing sector collapsed. Is there a single word to describe these developments? Yes: "recession."

The crisis was accompanied by recessions in many countries. This pattern is consistent with the historical record. Simultaneous, or synchronized, recessions have occurred in advanced economies several times in the past four decades-the mid-1970s, early 1980s, early 1990s, and early 2000s. Because the United States is the world's largest economy and has strong trade and financial linkages with many other economies, most of these globally synchronized recession episodes also coincide with US recessions.

Although US recessions had become milder over time, the recent global crisis reversed that trend. The latest episode was one of the longest and deepest recessions since the Great Depression of the 1930s. It led to a sharp increase in unemployment-along with substantial declines in output, consumption, and investment.

Calling a recession

There is no official definition of recession, but there is general recognition that the term refers to a period of decline in economic activity. Very short periods of decline are not considered recessions. Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country's real (inflation-adjusted) gross domestic product (GDP)-the value of all goods and services a country produces. Although this definition is a useful rule of thumb, it has drawbacks. A focus on GDP alone is narrow, and it is often better to consider a wider set of measures of economic activity to determine whether a country is indeed suffering a recession. Using other indicators can also provide a timelier gauge of the state of the economy.

In the United States, the private National Bureau of Economic Research (NBER), which maintains a chronology of the beginning and ending dates of US recessions, uses a broader definition and considers a number of measures of activity to determine the dates of recessions. The NBER's Business Cycle Dating Committee defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough." Consistent with this definition, the Committee focuses on a comprehensive set of measures-including not only GDP, but also employment, income, sales, and industrial production-to analyze the trends in economic activity.

Although an economy can show signs of weakening months before a recession begins, the process of determining whether a country is in a true recession often takes time. For example, it took the NBER committee a year to announce the beginning and end dates of the most recent US recession. This is understandable. The decision process involves establishing a broad decline in economic activity over an extended period of time, after compiling and sifting through many variables, which are often subject to revisions after their initial announcement. In addition, different measures of activity may exhibit conflicting behavior, making it difficult to identify whether the country is indeed suffering from a broad-based decline in economic activity.

Why do recessions happen?

Understanding the sources of recessions has been one of the enduring areas of research in economics. There are a variety of reasons recessions take place. Some are associated with sharp changes in the prices of the inputs used in producing goods and services. For example, a steep increase in oil prices can be a harbinger of a recession. As energy becomes expensive, it pushes up the overall price level, leading to a decline in aggregate demand. A recession can also be triggered by a country's decision to reduce inflation by employing contractionary monetary or fiscal policies. When used excessively, such policies can lead to a decline in demand for goods and services, eventually resulting in a recession.

Other recessions, such as the one that began in 2007, are rooted in financial market problems. Sharp increases in asset prices and a speedy expansion of credit often coincide with rapid accumulation of debt. As corporations and households get overextended and face difficulties in meeting their debt obligations, they reduce investment and consumption, which in turn leads to a decrease in economic activity. Not all such credit booms end up in recessions, but when they do, these recessions are often more costly than others. Recessions can be the result of a decline in external demand, especially in countries with strong export sectors. Adverse effects of recessions in large countries-such as Germany, Japan, and the United States-are rapidly felt by their regional trading partners, especially during globally synchronized recessions.

Because recessions have many potential causes, it is a challenge to predict them. The behavioral patterns of numerous economic variables-including credit volume, asset prices, and the unemployment rate-around recessions have been documented, but although they might be the cause of recessions, they could also be the result of recessions-or in economic parlance, endogenous to recessions. Even though economists use a large set of variables to forecast the future behavior of economic activity, none has proved a reliable predictor of whether a recession is going to take place. Changes in some variables-such as asset prices, the unemployment rate, certain interest rates, and consumer confidence-appear to be useful in predicting recessions, but economists still fall short of accurately forecasting a significant fraction of recessions, let alone predicting their severity in terms of duration and amplitude.

Recessions are infrequent but costly

There were 122 completed recessions in 21 advanced economies over the 1960-2007 period. Although this sounds like a lot, recessions do not happen frequently. Indeed, the proportion of time spent in recession-measured by the percentage of quarters a country was in recession over the full sample period-was typically about 10 percent. Although each recession has unique features, recessions often exhibit a number of common characteristics:

* They typically last about a year and often result in a significant output cost. In particular, a recession is usually associated with a decline of 2 percent in GDP. In the case of severe recessions, the typical output cost is close to 5 percent.

* The fall in consumption is often small, but both industrial production and investment register much larger declines than that in GDP.

* They typically overlap with drops in international trade as exports and, especially, imports fall sharply during periods of slowdown.

* The unemployment rate almost always jumps and inflation falls slightly because overall demand for goods and services is curtailed. Along with the erosion of house and equity values, recessions tend to be associated with turmoil in financial markets.

What about a depression?

The latest US recession-which began in December 2007 and ended in June 2009-was the longest (18 months) and deepest (about a 3.7 percent decline in output) the country has experienced since 1960. The typical US recession prior to 2007 lasted about 11 months and resulted in a peak-to-trough output decline of 1.7 percent. Although investment and industrial production fell in every recession, consumption registered a decline in only four out of eight episodes since 1960.

One question sometimes asked is how a recession compares with a depression, especially the Great Depression of the 1930s. There is no formal definition of depression, but most analysts consider a depression to be an extremely severe recession, in which the decline in GDP exceeds 10 percent. There have been only a handful of depression episodes in advanced economies since 1960. The most recent was in the early 1990s in Finland, which registered a decline in GDP of about 14 percent. That depression coincided with the breakup of the Soviet Union, a large trading partner of Finland. During the Great Depression, the US economy contracted by about 30 percent over a four-year period. Although the latest recession was obviously severe, its output cost was much smaller than that of the Great Depression.

Stijn Claessens is head of financial stability policy in the Bank for International Settlements' Monetary and Economic Department.

M. AYHAN KOSE is director of the World Bank's Prospects Group.

References:

Claessens, Stijn, M. Ayhan Kose, and Marco Terrones. 2009. "What Happens During Recessions, Crunches, and Busts?" Economic Policy 60: 653-700. Also IMF Working Paper 08/274. Washington.

---. 2011a. "Financial Cycles: What? How? When?" NBER 2010 International Seminar on Macroeconomics, Richard Clarida and Francesco Giavazzi, eds. Also IMF Working Paper 11/76. Washington.

---. 2011b. "How Do Business and Financial Cycles Interact?" IMF Working Paper 11/88. Washington.

# data[].attributes.attachment_link.description
Download PDF BACK T O BASICS COMPILATION It is a sustained period when economic output falls and unemployment rises Following the onset of the recent global economic crisis, much of the news, especially in advanced economies, was dire. Unemployment was rising, company profits were falling, financial markets were tumbling, and the housing sector collapsed.

# data[].attributes.headline
CNBC News- "Why Recessions May Be Inevitable" 

# data[].attributes.subject
CNBC News- "Why Recessions May Be Inevitable" 

# data[].attributes.body
I. Many causes of a Recession; a sudden shock such as Covid, or dot-com bubble, high inflation, low unemployment or "overheating"

II. This source provides a diverse set of opinions from experts on the causes importance and effects of a recession highlighting the debates and complexity behind them.

# data[].attributes.body
I. Recessions are marked by multiple economic downturns, such as high inflation or asset bubbles.

II. A source that balances technical detail with a concise text with information on the effects of a recession patterns of events that proceed recessions

# data[].attributes.headline
Federal Reserve History: "The Great Recession and Its Aftermath"

# data[].attributes.subject
Federal Reserve History: "The Great Recession and Its Aftermath"

# data[].attributes.body
I. Recessions are caused by irresponsible spending and lending practices of major financial institutions

II. This source reviews a specific recession rather than analyzing general trends, providing an important example of how concepts from the other sources directly apply to a specific event

# data[].attributes.attachment_link.readable_text
The period known as the Great Moderation came to an end when the decade-long expansion in US housing market activity peaked in 2006 and residential construction began declining. In 2007, losses on mortgage-related financial assets began to cause strains in global financial markets, and in December 2007 the US economy entered a recession. That year several large financial firms experienced financial distress, and many financial markets experienced significant turbulence. In response, the Federal Reserve provided liquidity and support through a range of programs motivated by a desire to improve the functioning of financial markets and institutions, and thereby limit the harm to the US economy.Nonetheless, in the fall of 2008, the economic contraction worsened, ultimately becoming deep enough and protracted enough to acquire the label "the Great Recession." While the US economy bottomed out in the middle of 2009, the recovery in the years immediately following was by some measures unusually slow. The Federal Reserve has provided unprecedented monetary accommodation in response to the severity of the contraction and the gradual pace of the ensuing recovery. In addition, the financial crisis led to a range of major reforms in banking and financial regulation, congressional legislation that significantly affected the Federal Reserve.

Rise and Fall of the Housing Market

The recession and crisis followed an extended period of expansion in US housing construction, home prices, and housing credit. This expansion began in the 1990s and continued unabated through the 2001 recession, accelerating in the mid-2000s. Average home prices in the United States more than doubled between 1998 and 2006, the sharpest increase recorded in US history, and even larger gains were recorded in some regions. Home ownership in this period rose from 64 percent in 1994 to 69 percent in 2005, and residential investment grew from about 4.5 percent of US gross domestic product to about 6.5 percent over the same period. Roughly 40 percent of net private sector job creation between 2001 and 2005 was accounted for by employment in housing-related sectors.

The expansion in the housing sector was accompanied by an expansion in home mortgage borrowing by US households. Mortgage debt of US households rose from 61 percent of GDP in 1998 to 97 percent in 2006. A number of factors appear to have contributed to the growth in home mortgage debt. In the period after the 2001 recession, the Federal Open Market Committee (FOMC) maintained a low federal funds rate, and some observers have suggested that by keeping interest rates low for a "prolonged period" and by only increasing them at a "measured pace" after 2004, the Federal Reserve contributed to the expansion in housing market activity (Taylor 2007). However, other analysts have suggested that such factors can only account for a small portion of the increase in housing activity (Bernanke 2010). Moreover, the historically low level of interest rates may have been due, in part, to large accumulations of savings in some emerging market economies, which acted to depress interest rates globally (Bernanke 2005). Others point to the growth of the market for mortgage-backed securities as contributing to the increase in borrowing. Historically, it was difficult for borrowers to obtain mortgages if they were perceived as a poor credit risk, perhaps because of a below-average credit history or the inability to provide a large down payment. But during the early and mid-2000s, high-risk, or "subprime," mortgages were offered by lenders who repackaged these loans into securities. The result was a large expansion in access to housing credit, helping to fuel the subsequent increase in demand that bid up home prices nationwide.

Effects on the Financial Sector

After home prices peaked in the beginning of 2007, according to the Federal Housing Finance Agency House Price Index, the extent to which prices might eventually fall became a significant question for the pricing of mortgage-related securities because large declines in home prices were viewed as likely to lead to an increase in mortgage defaults and higher losses to holders of such securities. Large, nationwide declines in home prices had been relatively rare in the US historical data, but the run-up in home prices also had been unprecedented in its scale and scope. Ultimately, home prices fell by over a fifth on average across the nation from the first quarter of 2007 to the second quarter of 2011. This decline in home prices helped to spark the financial crisis of 2007-08, as financial market participants faced considerable uncertainty about the incidence of losses on mortgage-related assets. In August 2007, pressures emerged in certain financial markets, particularly the market for asset-backed commercial paper, as money market investors became wary of exposures to subprime mortgages (Covitz, Liang, and Suarez 2009). In the spring of 2008, the investment bank Bear Stearns was acquired by JPMorgan Chase with the assistance of the Federal Reserve. In September, Lehman Brothers filed for bankruptcy, and the next day the Federal Reserve provided support to AIG, a large insurance and financial services company. Citigroup and Bank of America sought support from the Federal Reserve, the Treasury, and the Federal Deposit Insurance Corporation.

The Fed's support to specific financial institutions was not the only expansion of central bank credit in response to the crisis. The Fed also introduced a number of new lending programs that provided liquidity to support a range of financial institutions and markets. These included a credit facility for "primary dealers," the broker-dealers that serve as counterparties for the Fed's open market operations, as well as lending programs designed to provide liquidity to money market mutual funds and the commercial paper market. Also introduced, in cooperation with the US Department of the Treasury, was the Term Asset-Backed Securities Loan Facility (TALF), which was designed to ease credit conditions for households and businesses by extending credit to US holders of high-quality asset-backed securities.

About 350 members of the Association of Community Organizations for Reform Now gather for a rally in front of the U.S. Capitol March 11, 2008, to raise awareness of home foreclosure crisis and encourage Congress to help LMI families stay in their homes. (Photo by Chip Somodevilla/Getty Images)

Initially, the expansion of Federal Reserve credit was financed by reducing the Federal Reserve's holdings of Treasury securities, in order to avoid an increase in bank reserves that would drive the federal funds rate below its target as banks sought to lend out their excess reserves. But in October 2008, the Federal Reserve gained the authority to pay banks interest on their excess reserves. This gave banks an incentive to hold onto their reserves rather than lending them out, thus mitigating the need for the Federal Reserve to offset its expanded lending with reductions in other assets.

Effects on the Broader Economy

The housing sector led not only the financial crisis, but also the downturn in broader economic activity. Residential investment peaked in 2006, as did employment in residential construction. The overall economy peaked in December 2007, the month the National Bureau of Economic Research recognizes as the beginning of the recession. The decline in overall economic activity was modest at first, but it steepened sharply in the fall of 2008 as stresses in financial markets reached their climax. From peak to trough, US gross domestic product fell by 4.3 percent, making this the deepest recession since World War II. It was also the longest, lasting eighteen months. The unemployment rate more than doubled, from less than 5 percent to 10 percent.

In response to weakening economic conditions, the FOMC lowered its target for the federal funds rate from 4.5 percent at the end of 2007 to 2 percent at the beginning of September 2008. As the financial crisis and the economic contraction intensified in the fall of 2008, the FOMC accelerated its interest rate cuts, taking the rate to its effective floor - a target range of 0 to 25 basis points - by the end of the year. In November 2008, the Federal Reserve also initiated the first in a series of large-scale asset purchase (LSAP) programs, buying mortgage-backed securities and longer-term Treasury securities. These purchases were intended to put downward pressure on long-term interest rates and improve financial conditions more broadly, thereby supporting economic activity (Bernanke 2012).

The recession ended in June 2009, but economic weakness persisted. Economic growth was only moderate - averaging about 2 percent in the first four years of the recovery - and the unemployment rate, particularly the rate of long-term unemployment, remained at historically elevated levels. In the face of this prolonged weakness, the Federal Reserve maintained an exceptionally low level for the federal funds rate target and sought new ways to provide additional monetary accommodation. These included additional LSAP programs, known more popularly as quantitative easing, or QE. The FOMC also began communicating its intentions for future policy settings more explicitly in its public statements, particularly the circumstances under which exceptionally low interest rates were likely to be appropriate. For example, in December 2012, the committee stated that it anticipates that exceptionally low interest rates would likely remain appropriate at least as long as the unemployment rate was above a threshold value of 6.5 percent and inflation was expected to be no more than a half percentage point above the committee's 2 percent longer-run goal. This strategy, known as "forward guidance," was intended to convince the public that rates would stay low at least until certain economic conditions were met, thereby putting downward pressure on longer-term interest rates.

Effects on Financial Regulation

When the financial market turmoil had subsided, attention naturally turned to reforms to the financial sector and its supervision and regulation, motivated by a desire to avoid similar events in the future. A number of measures have been proposed or put in place to reduce the risk of financial distress. For traditional banks, there are significant increases in the amount of required capital overall, with larger increases for so-called "systemically important" institutions (Bank for International Settlements 2011a; 2011b). Liquidity standards will for the first time formally limit the amount of banks' maturity transformation (Bank for International Settlements 2013). Regular stress testing will help both banks and regulators understand risks and will force banks to use earnings to build capital instead of paying dividends as conditions deteriorate (Board of Governors 2011).

The Dodd-Frank Act of 2010 also created new provisions for the treatment of large financial institutions. For example, the Financial Stability Oversight Council has the authority to designate nontraditional credit intermediaries "Systemically Important Financial Institutions" (SIFIs), which subjects them to the oversight of the Federal Reserve. The act also created the Orderly Liquidation Authority (OLA), which allows the Federal Deposit Insurance Corporation to wind down certain institutions when the firm's failure is expected to pose a great risk to the financial system. Another provision of the act requires large financial institutions to create "living wills," which are detailed plans laying out how the institution could be resolved under US bankruptcy code without jeopardizing the rest of the financial system or requiring government support.

Like the Great Depression of the 1930s and the Great Inflation of the 1970s, the financial crisis of 2008 and the ensuing recession are vital areas of study for economists and policymakers. While it may be many years before the causes and consequences of these events are fully understood, the effort to untangle them is an important opportunity for the Federal Reserve and other agencies to learn lessons that can inform future policy.

# data[].attributes.attachment_link.description
The 2007-09 economic crisis was deep and protracted enough to become known as "the Great Recession" and was followed by what was, by some measures, a long but unusually slow recovery.