International financial institutions, and their governing bodies, having failed to be pro-active in anticipating and circumscribing the initial crisis, reacted with a plethora of initiatives while the economics profession, never a model of unity, polarised into opposing camps, with neoKeynesians plugging the virtues of fiscal stimulus and monetary easing pitched against “austerians” sounding dire warnings about fiscal profligacy and debt sustainability, even as all agreed on the need to dump failing hypotheses on the efficiency of markets and the faulty models that had brought the world to the edge of financial Armageddon.
Over the last few years they have invested increasingly in bonds of their home governments and their home regions. The links between bank risks and sovereign risks have become much stronger, not looser, in recent years. Nonetheless, the reasons for this development are more nuanced than simply the outright public ownership of banks.