Have the government measures been enough to restore stakeholder confidence in the banking system? An Analysis of the 2007 Financial Crisis

“In good times, people trust. They make decisions spontaneously. They know instinctively that they will be successful. They suspend their suspicions. Asset prices will be high and perhaps also increasing. As long as people remain trusting, their impulsiveness will not be evident. But then, when the confidence disappears, the tide goes out. The nakedness of their decisions stands revealed” (Akerlof and Shiller, 2009:13) Confidence is a very interesting concept. Everything we do is based on confidence. When we purchase a car for example we are confident in the quality of the product and in its ability to perform the required task. Such then is the same for the financial market. When a bank lends money, they have confidence in the borrower‟s ability to pay. What happens then when this confidence is broken? The market needs this confidence to be restored before it can carry on operating. The financial crisis of 2007 was a time of broken confidence, and so this report will delve in to the measures taken by the UK and US governments in order to restore this lost confidence and to restart the market. Measures of confidence relationships within the financial system will be analysed in reference to the financial crisis timeline. This report found that the government measures employed to restore confidence worked throughout the financial system with the exception of the decision to allow Lehman Brothers to fail