The postmodern bank safety net : lessons from developed and developing economies / Charles W. Calomiris.

Format:

Book

Author/Creator:

Calomiris, Charles W.

Series:

AEI studies on financial market deregulation.

AEI studies on financial market deregulation

Language:

English

Subjects (All):

Deposit insurance.

Banks and banking--Deregulation.

Banks and banking.

Physical Description:

1 online resource (53 p.)

Place of Publication:

Washington, D.C. : AEI Press, 1997.

Language Note:

English

Summary:

Federal deposit insurance may be "the single most destabilizing influence in the financial system," says economist Charles W. Calomiris in a new study published by AEI. Market discipline provides a better bank safety net than government insurance, he concludes. The Postmodern Bank Safety Net: Lessons from Developed and Developing Economies shows how government deposit insurance subsidizes the risks taken by banks. Weak banks deliberately and sometimes with impunity take on greater risks than they can afford. Undue risk-taking would not be tolerated were private market discipline brought to bear on banks, Calomiris argues. Market discipline would place the regulatory burden on sophisticated market participants with their own money at stake-a bank would survive only if it had investors, and those investors would be willing to risk their money only if they were able to evaluate the bank's risk. Currently, banks that hide loan losses can avoid paying increased deposit insurance costs. At the same time, Calomiris says, government regulators lack strong incentive to determine the true risk characteristics of bank assets-government regulators do not have their own money at stake and they face political pressure to maintain the credit supply. The results can be calamitous. In the 1970s and 1980s the Farm Credit System was increasingly willing to lend against questionable collateral while private banks withdrew from the market as lending risk increased. The system failed, gripping U.S. farmers in a debt crisis. Similarly, the savings and loan failures and the oil-related bank collapses in Texas and Oklahoma of the 19080s can be attributed to the failure of the bank safety net. And Chile, Mexico, and Japan have suffered financial collapses because their governments protected banks from self-inflicted losses.

Contents:

Intro

Contents

Foreword

1 The Evolution of the Modern Financial Safety Net

2 Questioning the Safety of the Safety Net

3 The Postmodern Safety Net

4 Limited Progress in Chile and Argentina

5 Conclusions

References

About the Author.

Notes:

Bibliographic Level Mode of Issuance: Monograph

Includes bibliographical references (p. 39-43).

OCLC:

70757946