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Why Are There So Many Banking Crises?: The Politics and Policy of Bank Regulation | 
| Author: Jean-charles Rochet
Publisher: Princeton University Press
Category: Book
List Price: $50.00
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Avg. Customer Rating:  1 reviews
Sales Rank: 378483
Media: Hardcover
Number Of Items: 1
Pages: 336
Shipping Weight (lbs): 1.3
Dimensions (in): 9.5 x 6.5 x 1.2
ISBN: 0691131465
Dewey Decimal Number: 338
EAN: 9780691131467
ASIN: 0691131465
Publication Date: January 23, 2008
Availability: Usually ships in 1-2 business days
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| Editorial Reviews:
Product Description
pAlmost 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 iWhy Are There So Many Banking Crises?/i, 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./p
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| Customer Reviews:
3.5 Stars-Neglects the fundamental cause of bank failure-speculation May 18, 2008
5 out of 6 found this review helpful
This is an interesting,but incomplete,set of essays written by Jean-Charles Rochet and a number of co-authors which are based on the standard views of analyzing the banking industry's interest rate risk problems -asymmetric(incomplete or partial) information,adverse selection,moral hazard,and income gap(duration gap),value at risk models that seek to maintain bank capitalization levels in the face of banking industry attempts to minimize interest rate risk.Thus,"..improperly chosen risk weights induce banks to select inefficient portfolios and to undertake regulatory arbitrage activities that might paradoxically result in increased risk"(p.6).The alleged " solution " appears on p.250-"...adoption of "market-based" risk weights,i.e.,weights proportional to the systematic risks of these assets measured by their market betas..."(p.250).THe problem is that all of the essays are written on the misbelief that the normal probability distribution can be used to model risk.There is no attempt to deal with the equally important problem of uncertainty,in the sense of Keynes,Ellsberg and Knight,or the " wild " risk that Mandelbrot has shown is of paramount importance.The VAR models all assume normality,as do the beta results calculated from the CAPM .br / The major objection is that,while the authors are aware that the commercial banks are continually attempting to sidestep the regulatory apparatus by " securitization",they don't draw the fundamental conclusion that was already arrived at by Adam Smith over 230 years ago-commercial banks can not be allowed to make loans to projectors(Keynes's stock and financial market speculators and rentiers),imprudent risk takers,and prodigals.If loans are extended to these categories of borrower,the result will be the destruction and waste of the aggregate savings of a nation.The depositors' money must only be loaned out to those individuals who will use the money loans to produce actual goods,services,and create jobs.Otherwise,the necessary investment needed intertemporally to maintain full employment and economic growth will not be forthcoming and the country will be subjected to severe economic problems-inflation,deflation,or stagflation.None of the essays reach this fundamental conclusion that follows from the ancient wisdom of Adam Smith.
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