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International capital flow and domestic financial market structures explain why some countries are more vulnerable to banking crises.
List of contents
1. The politics and economics of financial instability; 2. Banking crises, capital flows, and financial market structure; 3. Capital inflows, market structure, and banking crises: empirical evidence; 4. O Canada? Unraveling the mystery of Canadian bank stability; 5. Finanzplatz Deutschland: German bank stability and its decline; 6. Policy responses: what to do (and not to do) about financial instability.
About the author
Mark Copelovitch is Professor of Political Science and Public Affairs at the University of Wisconsin – Madison. He is author of The International Monetary Fund in the Global Economy: Banks, Bonds, and Bailouts.David A. Singer is Professor of Political Science at the Massachusetts Institute of Technology. He is author of Regulating Capital: Setting Standards for the International Financial System.
Summary
This book analyzes the structural and political roots of financial crises across countries and over time, honing in on two specific variables, foreign capital inflows and financial market structure. It explains how these factors interact to make some countries more vulnerable to banking crises than others.
Additional text
'Much recent work on banking crises focuses on emerging market economies in East Asia and Latin America. This timely book instead asks why there are banking crisis in developed economies and what policy-makers can do about them. As in the emerging market cases, the authors find that capital flows from abroad are an important potential trigger for banking crises. But what sets the developed world apart is the potential use of such capital and the structure of their financial systems, which are linked. As the case studies for Canada and Germany indicate, banks in countries with underdeveloped securities markets do not face pressure to channel this 'hot' capital to risky uses. In countries with developed security markets, however, risky behaviour is more likely, as are then banking crises. The policy implications follow convincingly from the analysis – address large current account deficits and increase capital requirements. Anyone interested in understanding crises and how to make them less frequent should read this book.' Mark Hallerberg, Hertie School of Governance
