The financial system, the financing and funding of production and investment in business through banks, financial institutions and stock markets have long been essential features of capitalist economies. The role of the financial sector has often been viewed in terms of supporting what may be termed the real economy, funding the establishment and expansion of firms, the provision of liquidity and the payments system. There have always been debates over the nature of the relationship between the financial system and the real economy, and how well the financial system serves the real economy.

The global financial crises of 2007– 09 (hereafter GFC) followed three decades of intense financialization, which will be referred to below as the present era of financialization. The plural “crises” is used here to indicate that there were major banking and financial crises in Iceland, Ireland, the UK and USA, which occurred around the same time and reached their height in the autumn of 2008. Although there were similar causes for these national financial crises there were also differences, and there were interactions and overlaps between them. The effects of these crises were exacerbated and spread through contagion – notably through effects of possession of “toxic assets” on banks’ balance sheets and through recessionary impacts on international trade.

The initial signs of financial difficulties came in August 2007 with problems in the inter-bank market and then the financial difficulties at Northern Rock in the UK. The collapse of Bear Stearns was a further sign of crisis, which intensified in September/October with the failure of Lehman Brothers followed by many other financial institutions being bailed by governments. In Iceland, three major banks collapsed in October 2008 and control was taken by the Financial Supervisory Authority. In Ireland, one major bank (Anglo Irish) was nationalised in January 2009 and two (Allied Irish Bank, Bank of Ireland) were bailed out by the government in February 2009. In the UK, there were major bailouts of Royal Bank of Scotland (RBS), HBOS and Lloyds TSB in October 2008, with the UK government acquiring initially a 43 per cent stakein Lloyds Banking Group and 82 per cent in RBS. There was also a banking crisis in Belgium, with its two largest banks, Fortis and Dexia, facing severe problems.