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Introduction to Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation
[Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation]

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Author Info

  • Jean-Charles Rochet

    (University of Toulouse, London School of Economics and Political Science)

Abstract

Almost every country in the world has sophisticated systems to prevent banking crises. Yet such crises--and the massive financial and social damage they can cause--remain common throughout the world. Does deposit insurance encourage depositors and bankers to take excessive risks? Are banking regulations poorly designed? Or are banking regulators incompetent? Jean-Charles Rochet, one of the world’s leading authorities on banking regulation, argues that the answer in each case is "no." In Why Are There So Many Banking Crises? , he makes the case that, although many banking crises are precipitated by financial deregulation and globalization, political interference often causes--and almost always exacerbates--banking crises. If, for example, political authorities are allowed to pressure banking regulators into bailing out banks that should be allowed to fail, then regulation will lack credibility and market discipline won't work. Only by insuring the independence of banking regulators, Rochet says, can market forces work and banking crises be prevented and minimized. In this important collection of essays, Rochet examines the causes of banking crises around the world in recent decades, focusing on the lender of last resort; prudential regulation and the management of risk; and solvency regulations. His proposals for reforms that could limit the frequency and severity of banking crises should interest a wide range of academic economists and those working for central and private banks and financial services authorities.

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Bibliographic Info

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This chapter was published in: Jean-Charles Rochet , , pages , 2008.

This item is provided by Princeton University Press in its series Introductory Chapters with number 8660-1.

Handle: RePEc:pup:chapts:8660-1

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Web page: http://press.princeton.edu

Related research

Keywords: banking crises; bank regulation; deposit insurance; globalization;

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Cited by:
  1. Luc Laeven, 2011. "Banking Crises: A Review," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 17-40, December.
  2. Jacopo Carmassi & Stefano Micossi, 2012. "Time to Set Banking Regulation Right," FMG Special Papers sp206, Financial Markets Group.
  3. Harald Hau & Marcel Thum, 2009. "Subprime Crisis and Board (In-)Competence: Private vs. Public Banks in Germany," CESifo Working Paper Series 2640, CESifo Group Munich.
  4. Chiarella, Carl & Flaschel, Peter & Hartmann, Florian & Proaño, Christian R., 2012. "Stock market booms, endogenous credit creation and the implications of broad and narrow banking for macroeconomic stability," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 410-423.

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