Various equilibriums could occur in the financial market, and the triggering mechanism of systematic risks also has various patterns. Systematically Important Financial Institutions (SIFIs) are one of the foremost origins of systematic risks. Many small financial institutions, and even problems and crises outside the system, may have great systematic impact due to interactions of various complex factors. In the face of the increasingly complicated situation, all countries are confronted with formidable challenges in their assessment of situation and risk response decision-making. Looking back at the "history" not far from today, we can know better about how to assess the situation and apply coping strategies in a financial crisis like 2008.

Take Europe as an example. In 2007, the share prices of Northern Rock of the UK already began to slump and bank runs already emerged. Instead of being a large global bank, Northern Rock was only the fifth largest mortgage lender in the UK. However, taking various factors into overall consideration, the British government decided to take bailout measures by successively "nationalizing" Northern Rock and Bradford & Bingley, the eighth-largest mortgage lender. In the Fortis crisis involving Belgium, Netherlands and Luxembourg as well as the Dexia crisis involving Belgium, France and Luxembourg in 2008, the bailout measures and results were quite similar. In the corresponding period, however, the government bailout for Glitnir, the third-largest bank in Iceland, was blamed to have undermined the confidence of the international market in Iceland's financial system. The British government responded by freezing the assets of Iceland's second-largest bank Landsbanki in the UK, which led to the bankruptcy of Iceland's largest bank Kaupthing. All this happened within a week in October 2008, and caught people by surprise. After 2010, the European sovereign debt crisis kept deepening. Greece almost went bankrupt; problems of cash-flow and sovereign debt emerged successively in Ireland, Spain, Portugal and Italy. In 2013, a banking crisis broke out in Cyprus. Although these countries were not weighty economies, all of them could further aggravate Eurozone's economic crisis and even lead to a Eurozone break-up. Therefore, they were reckoned to be of systematic importance.

Nevertheless, the handling of the Greek crisis by institutions like the European Central Bank (ECB) and International Monetary Fund (IMF) was for a long time controversy, and the Eurozone member states also divided. The major concern was that unconditional bailouts for Greece might indulge the moral hazard of "extravagance" within the Eurozone and trigger discontent among the taxpayers of bailout countries. Meanwhile, the coordination mechanism within the Eurozone didn't function well, which brought about frequent setbacks to the bailout plan for Greece, and the crisis continued to deteriorate. Overall, the dual nature of the situation assessment made European regulators and the governments of the European countries concerned often confused about the measures to cope with the debt crisis in Europe. Were the recipients of systematic importance? Would the incidents and situations the regulators were facing touch off a systematic crisis? Would the government intervention intensify the moral hazard of the recipients? And so forth. In July 2013, the European Council authorized Latvia to join the Eurozone the next year, which temporarily terminated the "Euro Collapse." But on the other hand, the 18-month-long consecutive negative growth of the Gross Domestic Product (GDP) of 17 countries within the Eurozone didn't come to an end until 2013. Until today, the Eurozone's endeavor to cope with the crisis is still being questioned.

Take the US as another example. The year 2008 was the most critical year in the evolution of the American financial crisis. In March 2008, in order to relieve the liquidity shortage crisis of Bear Sterns, America's fifth-largest investment bank, the Federal Reserve urgently decided to ask the New York Federal Reserve Bank to provide Bear Stearns with emergency fund through JP Morgan Chase. It was the first time since the Great Depression in 1929 for the Federal Reserve to provide emergency fund to a non-commercial bank. In the spring and summer of the same year, some important economic indicators like market value and book value ratio of Lehman Brothers warned that the company would possibly collapse, yet the US government didn't think there was a problem of systematic importance. Half a year later, Lehman Brothers' request for bailout was rejected, which led to its final bankruptcy, the greatest bankruptcy in American history. Undoubtedly the signals from the US government seemed to be rather confusing. Before Lehman Brothers went bankrupt, the US government hastily organized intensive negotiations and consultations with investors worldwide, which seemed to affirm that the company was of systematic importance. Afterwards, it was found that the bankruptcy of Lehman Brothers and its related runs on money market fund and collapses of commercial paper market gave rise to serious contagions, which finally made it the symbolic event of the current financial crisis. By contrast, American International Group (AIG)'s situation was different from Lehman Brothers'. The proportion of financial products of AIG in the group's gross income had always been low, however, considering the financial turbulence after Lehman Brothers' bankruptcy and the worry about similar contagions, the US Treasury Department and the Federal Reserve made the decision two days later to rescue AIG on a large scale, and soon they held 79.9 percent of the group's shares of stock. A "systematic" bailout of 62.1 billion US dollars was paid to 16 counterparties. Three-fourths of these counterparties' headquarters were not located in the US, and the largest sum of money, 16.5 billion US dollars, was paid to Société Générale of France.

So far, the US economy has shown a tendency of stability and moderate recovery. In fact, as early as June 2012, the head of the New York Federal Reserve stated that the related bailout fund during the financial crisis had achieved the policy objective to protect the US economy, and had "taken all the investment back with interest," which "marked a milestone." Ever since 2014, all the indicators of the US economy have further improved, and the economic authorities like the Federal Reserve have started to orderly withdraw from the crisis bailout and resolution policies and turn to achieving the sustainable development of economy after the crisis.

Liu Ming, Deputy Chief Editor of the Outlook Media Group, Xinhua News Agency, believes that looking back at the "history" not far from today, we can know better about how to assess the situation and apply coping strategies in a financial crisis like 2008.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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