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An Autopsy of the U.S. Financial System

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  • Ross Levine

Abstract

In this postmortem, I find that the design, implementation, and maintenance of financial policies during the period from 1996 through 2006 were primary causes of the financial system's demise. The evidence is inconsistent with the view that the collapse of the financial system was caused only by the popping of the housing bubble and the herding behavior of financiers rushing to create and market increasingly complex and questionable financial products. Rather, the evidence indicates that regulatory agencies were aware of the growing fragility of the financial system associated with their policies during the decade before the crisis and yet chose not to modify those policies.

Suggested Citation

  • Ross Levine, 2010. "An Autopsy of the U.S. Financial System," NBER Working Papers 15956, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15956
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    8. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
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    11. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, September.
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    Cited by:

    1. Paul A Wachtel, 2011. "Central Banking for the 21st Century: An American Perspective," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), Post-Crisis Growth and Integration in Europe, chapter 10, Edward Elgar Publishing.
    2. Klein, Alexander & Otsuy, Keisuke, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," CAGE Online Working Paper Series 147, Competitive Advantage in the Global Economy (CAGE).
    3. Mettenheim Kurt, 2013. "Back to Basics in Banking Theory and Varieties of Finance Capitalism," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 357-405, May.
    4. Alexander, Gordon J. & Baptista, Alexandre M. & Yan, Shu, 2012. "When more is less: Using multiple constraints to reduce tail risk," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2693-2716.
    5. Argandoña, Antonio, 2012. "Three ethical dimensions of the financial crisis," IESE Research Papers D/944, IESE Business School.
    6. Bagliano, Fabio C. & Morana, Claudio, 2012. "The Great Recession: US dynamics and spillovers to the world economy," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 1-13.
    7. Avignone, Giuseppe & Altunbas, Yener & Polizzi, Salvatore & Reghezza, Alessio, 2021. "Centralised or decentralised banking supervision? Evidence from European banks," Journal of International Money and Finance, Elsevier, vol. 110(C).
    8. Cihak, Martin & Demirguc-Kunt, Asli & Johnston, R. Barry, 2013. "Incentive audits : a new approach to financial regulation," Policy Research Working Paper Series 6308, The World Bank.
    9. Salma Louati & Younes Boujelbene, 2021. "Basel Regulations and Banks’ Risk-efficiency Nexus: Evidence from Dynamic Simultaneous-equation Models," Journal of African Business, Taylor & Francis Journals, vol. 22(4), pages 578-602, October.
    10. Alex Klein & Keisuke Otsu, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," Studies in Economics 1317, School of Economics, University of Kent.
    11. Thomas D. Willett, 2012. "The role of defective mental models in generating the global financial crisis," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 4(1), pages 41-57, April.
    12. Poczter, Sharon, 2016. "The long-term effects of bank recapitalization: Evidence from Indonesia," Journal of Financial Intermediation, Elsevier, vol. 25(C), pages 131-153.

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    More about this item

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H1 - Public Economics - - Structure and Scope of Government

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