Banking Crises : Perspectives From the New Palgrave Dictionary of Economics

Why do banks collapse? Are financial systems more fragile in recent decades? Can policies to fix the banking system do more harm than good? What's the history of banking crises? With dozens of brief, non-technical articles by economists and other researchers, Banking Crises offers answers from diverse scholarly viewpoints.-- Provided by Publisher Banking Crises: Perspectives from The New Palgrave Dictionary 4 Contents 6 List of Figures 8 List of Tables 10 Preface 11 List of Contributors 14 Bagehot, Walter (1826–1877) 16 Selected works 19 Bibliography 19 Bank of England 20 The evolution of the Bank’s objectives and functions, 1694–1914 20 A subservient Bank, 1914–1992 23 Independent and focused, 1992– 29 Bibliography 31 banking crises 33 Unusual historical instability of US banks 34 Changing perceptions of banking instability 35 Bibliography 38 banking industry 40 Bibliography 41 bubbles 43 Rational bubbles under symmetric information 43 Asymmetric information bubbles 46 Bubbles due to limited arbitrage 47 Heterogeneous beliefs bubbles 48 Experimental evidence 49 Bibliography 50 bubbles in history 52 Bibliography 53 capital controls 54 History of the debate 54 Benefits and costs of capital controls 55 Empirical evidence on capital controls 55 Conclusions 57 Bibliography 57 Credit Crunch Chronology: April 2007–September 2009 59 credit rating agencies 85 History 85 Important Aspects of Industry Structure 85 Evidence on CRAs in the corporate bond market 86 Structured finance products and the financial crisis of 2007–2009 87 Bibliography 88 currency crises 90 Bibliography 93 currency crises models 94 Bibliography 97 euro zone crisis 2010 99 Introduction 99 A brief chronology 99 The root causes of the crisis: leverage and bubbles 104 Bibliography 108 Federal Reserve System 109 The early years 109 The Great Depression 113 Restructuring the Federal Reserve System 114 Second World War and recovery 116 Resumption of discretionary monetary policy 116 Towards flexible exchange rates 118 Financial deregulation 119 Bibliography 122 gold standard 123 Types of gold standard 123 Countries on the classical gold standard 124 Elements of instability in classical gold standard 124 Automatic force for stability: price specie-flow mechanism 125 Rules of the game 126 Reason for stability: credible commitment to convertibility 126 Implications of credible commitment 128 Government policies that enhanced stability 128 Experience of periphery 129 Breakdown of classical gold standard 129 Return to the gold standard 130 Instability of interwar gold standard 131 Breakdown of interwar gold standard 132 Bibliography 133 Greek crisis in perspective: Origins, effects and ways-out 134 1. Introduction 134 2. The period of debt escalation: 1980–1993 135 3. Debt stabilization and EMU membership 138 4. Unprepared for the 2008 crisis 143 5. Two important policy facts 145 6. An ex post assessment of the Memorandum 147 7. The new Memorandum conditionalities and ways-out of the crisis 150 8. Conclusions 155 Acknowledgement 156 Disclaimer 156 References 156 Appendix: A brief description of the conditionality programs for Greece 157 Great Depression 159 Magnitude 159 Analysis 161 Narrative 162 Complications 165 Recovery 166 Bibliography 167 Great Depression, monetary and financial forces in 169 Bibliography 172 International Monetary Fund 173 1 The Bretton Woods system 173 2 Breakdown and reconfiguration 177 3 The IMF and policy surveillance 179 4 The IMF and crises in emerging markets since 1980 183 5 The IMF and low-income countries 194 6 The Future of the IMF: next steps 197 Bibliography 201 international monetary institutions 207 Alternative exchange rate mechanisms 207 Reserve assets 208 Adjustment mechanisms 208 Financing 209 A model of adjustment versus financing 209 The role of markets and institutions 210 The evolution of international monetary institutions 210 Bibliography 215 Kindleberger, Charles P. (1910–2003) 216 Selected works 218 Bibliography 218 laboratory financial markets 219 Early laboratory markets 219 Dissecting financial markets 220 Attenuating biases and errors 221 Amplifying biases and errors 222 Current frontiers: market formats, agents, and prediction markets 223 Bibliography 225 Law, John (1671–1729) 226 Selected works 227 Bibliography 227 Lehman Brothers bankruptcy, what lessons can be drawn? 228 Just the facts 228 Interpreting the facts 229 International issues 230 US bankruptcy law and complex financial institutions 230 Bankruptcy and contagion 231 Bankruptcy and qualified financial contracts 232 The scope of US bankruptcy law 233 Policy implications 234 Bibliography 234 liquidity trap 236 The modern view of the liquidity trap 236 Irrelevance results 238 The deflation bias and the optimal commitment 239 Shaping expectations 241 Conclusion: the Great Depression and the liquidity trap 243 Bibliography 244 Minsky crisis 245 Introduction 245 Minsky’s theory of the business cycle 246 Money manager capitalism and the crisis 248 Minskian policy in the aftermath of the collapse of money manager capitalism 253 Bibliography 254 New Deal 256 New Deal monetary, banking, and international policy 257 The Reconstruction Finance Corporation (RFC): New Deal lender 258 Emergency relief and public works programmes 258 Farm programmes 260 The political economic geography of New Deal spending 260 Industrial and labour policies 261 The Social Security Act of 1935 262 Conclusion 263 Bibliography 263 quantitative easing by the major western central banks during the global financial crisis 266 Short-term interest rates had been the primary policy tool of central banks prior to the financial crisis 266 Quantitative easing begins in the US and the UK 268 The impact of QE1 272 QE2, QE3 and the LTROs 276 Further steps in the USA 276 Further steps in the UK 278 Why hasn’t inflation accelerated during QE? 279 Worries about other potential negative side effects from quantitative easing have grown 281 Conclusions 282 Acknowledgements 282 Bibliography 283 Run on Northern Rock, the 286 Introduction 286 The antecedents of the run 289 The subsequent history 293 Conclusions 296 Bibliography 296 shadow banking: a review of the literature 297 1) What Is Shadow Credit Intermediation? 297 2) Why Does Shadow Credit Intermediation Exist? 305 3) How Does Shadow Credit Intermediation Work? 310 4) Why Does Shadow Credit Intermediation Need to Be Regulated? 316 5) How Should Shadow Credit Intermediation Be Regulated? 321 6) Conclusion 327 Bibliography 328 speculative bubbles 331 Bibliography 334 South Sea bubble 336 Interpretations 336 Consequences 337 Bibliography 338 subprime mortgage crisis, the 339 The rise and fall of subprime lending 339 Testing theories of the subprime crisis 343 Policy implications 349 Acknowledgements 350 Bibliography 350 tulipmania 352 The traditional image of tulipmania 352 The fundamentals of the tulipmania 353 An historical background 354 How should we interpret the tulipmania? 355 Bibliography 355 Index 356