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Does Financial Liberalization Increase The Likelihood Of A Systemic Banking Crisis Evidence From The Past Three Decades And The Great Depression
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Book Synopsis Does Financial Liberalization Increase the Likelihood of a Systemic Banking Crisis? Evidence from the Past Three Decades and the Great Depression by : Arthur E. Wilmarth
Download or read book Does Financial Liberalization Increase the Likelihood of a Systemic Banking Crisis? Evidence from the Past Three Decades and the Great Depression written by Arthur E. Wilmarth and published by . This book was released on 2004 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past three decades, leading industrial nations and many developing countries have deregulated their financial markets. Financial liberalization has produced major benefits, including more efficient intermediation of financial resources, more rapid economic development and faster growth in trade. At the same time, however, many banking crises have occurred in countries that previously adopted programs of financial deregulation. This essay provides a brief overview of banking crises in international markets since 1973, together with more detailed discussions of Japan's financial crisis that began in 1990, the U.S. banking crises of 1929-33 and 1980-92, and the challenges confronting major U.S. and European banks during 2000-02.This historical evidence indicates that financial liberalization encourages banks to increase their lending commitments and equity investments in the real estate and securities markets. A rapid growth of credit and investment in those markets typically produces an economic quot;boom,quot; which is fueled by positive feedback between rising asset prices and the willingness of creditors and investors to provide additional financing in the belief that asset values will continue to increase. Under such conditions, asset prices tend to quot;overshootquot; and reach levels that cannot be justified by economic quot;fundamentalsquot; (e.g., the actual cash flow generated by real estate projects and business ventures). When investors and creditors realize that market prices have diverged significantly from economic fundamentals, they are likely to pursue a rapid liquidation of investments and loans and thereby trigger a quot;bust.quot; A severe asset bust often gives rise to a systemic banking crisis, because it exposes banks to crippling losses from defaulted loans and depreciated loan collateral and equity investments. Governments have typically responded to such crises by spending massive amounts to protect depositors and recapitalize banks.This apparent correlation between deregulation and banking crises suggests that financial liberalization has a quot;dark side,quot; because it tends to create a banking system that is more vulnerable to systemic risk. Bank regulators should therefore give greater attention to the potential lending and investment risks created by financial liberalization efforts.
Book Synopsis Financial Crises Explanations, Types, and Implications by : Mr.Stijn Claessens
Download or read book Financial Crises Explanations, Types, and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Book Synopsis Financial Crises by : Mr.Stijn Claessens
Download or read book Financial Crises written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2014-02-19 with total page 754 pages. Available in PDF, EPUB and Kindle. Book excerpt: The lingering effects of the economic crisis are still visible—this shows a clear need to improve our understanding of financial crises. This book surveys a wide range of crises, including banking, balance of payments, and sovereign debt crises. It begins with an overview of the various types of crises and introduces a comprehensive database of crises. Broad lessons on crisis prevention and management, as well as the short-term economic effects of crises, recessions, and recoveries, are discussed.
Book Synopsis Global Waves of Debt by : M. Ayhan Kose
Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Book Synopsis Regulatory Cycles: Revisiting the Political Economy of Financial Crises by : Jihad Dagher
Download or read book Regulatory Cycles: Revisiting the Political Economy of Financial Crises written by Jihad Dagher and published by International Monetary Fund. This book was released on 2018-01-15 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.
Book Synopsis The Myth of Too Big To Fail by : I. Moosa
Download or read book The Myth of Too Big To Fail written by I. Moosa and published by Springer. This book was released on 2010-10-27 with total page 239 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book presents arguments against the taxpayers'-funded bailing out of failed financial institutions, and puts forward suggestions to circumvent the TBTF problem, including some preventive measures. It ultimately argues that a failing financial institution should be allowed to fail without fearing an apocalyptic outcome.
Download or read book Too Big to Fail written by Benton E. Gup and published by Bloomsbury Publishing USA. This book was released on 2003-12-30 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt: Usually associated with large bank failures, the phrase too big to fail, which is a particular form of government bailout, actually applies to a wide range of industries, as this volume makes clear. Examples range from Chrysler to Lockheed Aircraft and from New York City to Penn Central Railroad. Generally speaking, when a corporation, an organization, or an industry sector is considered by the government to be too important to the overall health of the economy, it will not be allowed to fail. Government bailouts are not new, nor are they limited to the United States. This book presents the views of academics, practitioners, and regulators from around the world (e.g., Australia, Hungary, Japan, Europe, and Latin America) on the implications and consequences of government bailouts.
Book Synopsis What Caused the Global Financial Crisis by : Erlend Nier
Download or read book What Caused the Global Financial Crisis written by Erlend Nier and published by International Monetary Fund. This book was released on 2010-11-01 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates empirically the drivers of financial imbalances ahead of the global financial crisis. Three factors may have contributed to the build-up of financial imbalances: (i) rising global imbalances (capital flows), (ii) monetary policy that might have been too loose, (iii) inadequate supervision and regulation. Panel data regressions are performed for OECD countries from 1999 to 2007, so as to shed light on the relative importance of these factors, as well as the extent to which these factors might have interacted in fuelling the build-up. We find that the build-up of financial imbalances was driven by capital inflows and an associated compression of the spread between long and short rates. The effect of capital inflows on the build-up is amplified where the supervisory and regulatory environment was relatively weak. We find that, by contrast, differences in monetary policy cannot account for differences across countries in the build-up of financial imbalances ahead of the crisis.
Book Synopsis Taming the Megabanks by : Arthur E. Wilmarth Jr
Download or read book Taming the Megabanks written by Arthur E. Wilmarth Jr and published by Oxford University Press. This book was released on 2020-09-18 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: Banks were allowed to enter securities markets and become universal banks during two periods in the past century - the 1920s and the late 1990s. Both times, universal banks made high-risk loans and packaged them into securities that were sold as safe investments to poorly-informed investors. Both times, universal banks promoted unsustainable booms that led to destructive busts - the Great Depression of the early 1930s and the Global Financial Crisis of 2007-09. Both times, governments were forced to arrange costly bailouts of universal banks. Congress passed the Glass-Steagall Act of 1933 in response to the Great Depression. The Act broke up universal banks and established a decentralized financial system composed of three separate and independent sectors: banking, securities, and insurance. That system was stable and successful for over four decades until the big-bank lobby persuaded regulators to open loopholes in Glass-Steagall during the 1980s and convinced Congress to repeal it in 1999. Congress did not adopt a new Glass-Steagall Act after the Global Financial Crisis. Instead, Congress passed the Dodd-Frank Act. Dodd-Frank's highly technical reforms tried to make banks safer but left in place a dangerous financial system dominated by universal banks. Universal banks continue to pose unacceptable risks to financial stability and economic and social welfare. They exert far too much influence over our political and regulatory systems because of their immense size and their undeniable "too-big-to-fail" status. In Taming the Megabanks, Arthur Wilmarth argues that we must again separate banks from securities markets to avoid another devastating financial crisis and ensure that our financial system serves Main Street business firms and consumers instead of Wall Street bankers and speculators. Wilmarth's comprehensive and detailed analysis demonstrates that a new Glass-Steagall Act would make our financial system much more stable and less likely to produce boom-and-bust cycles. Giant universal banks would no longer dominate our financial system or receive enormous subsidies. A more decentralized and competitive financial system would encourage banks and securities firms to fulfill their proper roles as servants - not masters - of Main Street businesses and consumers.
Book Synopsis Law, Bubbles, and Financial Regulation by : Erik Gerding
Download or read book Law, Bubbles, and Financial Regulation written by Erik Gerding and published by Routledge. This book was released on 2013-12-04 with total page 654 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial regulation can fail when it is needed the most. The dynamics of asset price bubbles weaken financial regulation just as financial markets begin to overheat and the risk of crisis spikes. At the same time, the failure of financial regulations adds further fuel to a bubble. This book examines the interaction of bubbles and financial regulation. It explores the ways in which bubbles lead to the failure of financial regulation by outlining five dynamics, which it collectively labels the "Regulatory Instability Hypothesis." . The book concludes by outlining approaches to make financial regulation more resilient to these dynamics that undermine law.
Book Synopsis Good Regulation, Bad Regulation by : Imad A. Moosa
Download or read book Good Regulation, Bad Regulation written by Imad A. Moosa and published by Springer. This book was released on 2016-01-12 with total page 261 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the 2007 2008 global financial crisis, there has been much debate about the role of financial regulation and the causes of financial instability in the industry. Where studies commonly question the value of a regulated rather than free market , this book focuses on the differentiation of 'good regulation' and 'bad regulation'. This book highlights the need for financial regulation to combat corruption, and the integral link that exists between corruption and financial instability. The author evaluates the benefits and shortcomings of specific types of regulation, drawing on recent examples to illustrate each argument. The book presents compelling arguments for the regulation of leverage, liquidity, payday loans and securitisation; and debates the negative aspects of the regulation of short selling, and high-frequency trading, and of Basel-style banking regulation. The author argues that there is no free-market solution to financial instability, and rejects the idea of 'too big to fail'.
Book Synopsis Commodity Price Movements and Banking Crises by : Mr.Markus Eberhardt
Download or read book Commodity Price Movements and Banking Crises written by Mr.Markus Eberhardt and published by International Monetary Fund. This book was released on 2018-07-06 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an empirical model to predict banking crises in a sample of 60 low-income countries (LICs) over the 1981-2015 period. Given the recent emergence of financial sector stress associated with low commodity prices in several LICs, we assign price movements in primary commodities a key role in our model. Accounting for changes in commodity prices significantly increases the predictive power of the model. The commodity price effect is economically substantial and robust to the inclusion of a wide array of potential drivers of banking crises. We confirm that net capital inflows increase the likelihood of a crisis; however, in contrast to recent findings for advanced and emerging economies, credit growth and capital flow surges play no significant role in predicting banking crises in LICs.
Book Synopsis Venomous Speech by : Clarke Rountree
Download or read book Venomous Speech written by Clarke Rountree and published by Bloomsbury Publishing USA. This book was released on 2013-04-30 with total page 529 pages. Available in PDF, EPUB and Kindle. Book excerpt: Is much of the current dysfunction in our political system attributable to the problematic discourse of politicians, pundits, and journalists? These authors on legal and political discourse say yes. This book contains essays by some of the best scholars of political communication that examine modern-day American political discourse. The contributors address what is problematic in our political discourse and what has resulted in unprecedented levels of gridlock, discord, and hostility, covering everything from the incivility of Congress to the spectacle of celebrity politicians... the arrogance of Republican and Democratic presidents to the difficulties of grassroots groups hoping to change the status quo... and the partisan shaping of news coverage to the growing influence of political comedians. This work provides a frank, hard-nosed look at what needs fixing, offers a critical lens from knowledgeable writers to help those frustrated with our political system to better understand why our discourse is so troubled, and lays out suggestions for reclaiming the commonwealth. Anyone interested in politics, government, or communication will benefit from learning how recent developments have created a "perfect storm" that is troubling the waters of our democracy.
Book Synopsis Inequality, Leverage and Crises by : Mr.Michael Kumhof
Download or read book Inequality, Leverage and Crises written by Mr.Michael Kumhof and published by International Monetary Fund. This book was released on 2010-11-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.
Book Synopsis International Macroeconomics in the Wake of the Global Financial Crisis by : Laurent Ferrara
Download or read book International Macroeconomics in the Wake of the Global Financial Crisis written by Laurent Ferrara and published by Springer. This book was released on 2018-06-13 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book collects selected articles addressing several currently debated issues in the field of international macroeconomics. They focus on the role of the central banks in the debate on how to come to terms with the long-term decline in productivity growth, insufficient aggregate demand, high economic uncertainty and growing inequalities following the global financial crisis. Central banks are of considerable importance in this debate since understanding the sluggishness of the recovery process as well as its implications for the natural interest rate are key to assessing output gaps and the monetary policy stance. The authors argue that a more dynamic domestic and external aggregate demand helps to raise the inflation rate, easing the constraint deriving from the zero lower bound and allowing monetary policy to depart from its current ultra-accommodative position. Beyond macroeconomic factors, the book also discusses a supportive financial environment as a precondition for the rebound of global economic activity, stressing that understanding capital flows is a prerequisite for economic-policy decisions.
Book Synopsis Financial Repression is Knocking at the Door, Again by : Mr.Etibar Jafarov
Download or read book Financial Repression is Knocking at the Door, Again written by Mr.Etibar Jafarov and published by International Monetary Fund. This book was released on 2019-09-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial repression (legal restrictions on interest rates, credit allocation, capital movements, and other financial operations) was widely used in the past but was largely abandoned in the liberalization wave of the 1990s, as widespread support for interventionist policies gave way to a renewed conception of government as an impartial referee. Financial repression has come back on the agenda with the surge in public debt in the wake of the Global Financial Crisis, and some countries have reintroduced administrative ceilings on interest rates. By distorting market incentives and signals, financial repression induces losses from inefficiency and rent-seeking that are not easily quantified. This study attempts to assess some of these losses by estimating the impact of financial repression on growth using an updated index of interest rate controls covering 90 countries over 45 years. The results suggest that financial repression poses a significant drag on growth, which could amount to 0.4-0.7 percentage points.
Book Synopsis Lessons and Policy Implications from the Global Financial Crisis by : Mr.Luc Laeven
Download or read book Lessons and Policy Implications from the Global Financial Crisis written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2010-02-01 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The ongoing global financial crisis is rooted in a combination of factors common to previous financial crises and some new factors. The crisis has brought to light a number of deficiencies in financial regulation and architecture, particularly in the treatment of systemically important financial institutions, the assessments of systemic risks and vulnerabilities, and the resolution of financial institutions. The global nature of the financial crisis has made clear that financially integrated markets, while offering many benefits, can also pose significant risks, with large real economic consequences. Deep reforms are therefore needed to the international financial architecture to safeguard the stability of an increasingly financially integrated world.
