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Banking systems should be understood as mutually profitable political bargains between governments and banks, argues Charles Calomiris in his and Stephen Haber's provocative new book, "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit." At a book forum on Wednesday evening, Calomiris discussed how such deals vary among countries, resulting in some robust banking systems and others that are prone to collapse.
Describing the last 40 years as the most crisis-prone period in banking history, Calomiris highlighted how only six countries both retained abundant credit and remained crisis free. These six states were either politically homogeneous or democracies with a history of antipopulist constitutions. However, he noted that democratic countries can also have endemic banking crises. Contrasting the history of banking structures in Canada and the US, Calomiris detailed how political groups captured economic benefits and weakened the US banking system, while Canada's constitutional structure blocked such bargains and produced a stable, competitive banking system.
AEI's Paul Kupiec agreed that one of the most important determinants of the size and stability of the financial sector is its political environment. Alex Pollock, also of AEI, concluded by drawing an interesting analogy between shifting bank bargains and the evolution of the names of the congressional committees that deal with banking affairs in the US from the Committee on Banking and Currency to the Committee on Banking, Housing, and Urban Affairs.
The world displays an instructive variety of banking system designs, some successful, some fragile, and some crisis prone. For example, the US has had numerous banking crises throughout its history while Canada has experienced none.
Surveying different banking systems in their new book, “Fragile by Design: The Political Origins of Banking Crises and Scarce Credit,” Charles Calomiris and Stephen Haber find a common element in all: a deal between the banks and politicians. But these banking bargains vary among countries. How are these deals made, what determines their terms, and how can the US banking system be improved? At this event, Charles Calomiris will present this provocative book, and a discussion by banking experts will follow.
If you are unable to attend, we welcome you to watch the event live on this page. Full video be posted within 24 hours.
Alex J. Pollock, AEI
Charles W. Calomiris, Columbia Business School and AEI
Paul H. Kupiec, AEI
Alex Pollock, AEI
Alex J. Pollock, AEI
Book Signing and Wine and Cheese Reception
For more information, please contact Emily Rapp at Emily.Rapp@aei.org, 202.419.5212.
For media inquiries, please contact MediaServices@aei.org, 202.862.5829.
Charles Calomiris is the Henry Kaufman Professor of Financial Institutions at Columbia Business School and a research associate at the National Bureau of Economic Research. His research spans several areas, from banking and corporate finance to financial history and monetary economics. Calomiris also served on the 2000 International Financial Institution Advisory Commission. Known as the Meltzer Commission, this congressionally mandated group recommends specific reforms of the International Monetary Fund, World Bank, regional development banks, and the World Trade Organization to the US government.
Paul H. Kupiec is a resident scholar at AEI, where he studies the management and regulation of banks and financial institutions markets, including issues of systemic risk and the impact of financial regulations on the US economy. Before joining AEI, Kupiec was director of the Center for Financial Research at the Federal Deposit Insurance Corporation (FDIC), and served as chairman of the Research Task Force of the Basel Committee on Banking Supervision. Before joining the FDIC, he held positions at the International Monetary Fund, Freddie Mac, J.P. Morgan, and the Board of Governors of the Federal Reserve System. Kupiec has served on the editorial boards of the Journal of Financial Services Research, Journal of Risk, and Journal of Investment Management. He is a member of the Shadow Financial Regulatory Committee.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was formerly president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is also the author of numerous articles on financial systems and the organizer of the Living in the Post-Bubble World series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.