Why are banking systems unstable in so many countries--but not in others? The United States has had 12 systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided miniscule amounts of credit to business enterprises and households. Analyzing the political and banking history of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries, Fragile by Design demonstrates that chronic banking crises and scarce credit are not accidents due to unforeseen circumstances. Rather, these fluctuations result from the complex bargains made between politicians, bankers, bank shareholders, depositors, debtors, and taxpayers. The well-being of banking systems depends on the abilities of political institutions to balance and limit how coalitions of these various groups influence government regulations.
Fragile by Design is a revealing exploration of the ways that politics inevitably intrudes into bank regulation. Charles Calomiris and Stephen Haber combine political history and economics to examine how coalitions of politicians, bankers, and other interest groups form, why some endure while others are undermined, and how they generate policies that determine who gets to be a banker, who has access to credit, and who pays for bank bailouts and rescues.
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An all-time favorite in banking, history, politics
- Phil O.
All Politicians & Financiers should read this book
This book is extremely academic but still very relevant. It illustrates wonderfully how the government somewhat unwittingly illustrated the ’08 financial crisis through various policy changes and incentives.
I would not suggest this book to anyone who isn’t truly interested in government policy and its relationship to financial markets, specifically banking. However, it’s very enjoyable to any history buffs with more than a basic understanding of economics.
You learn how banks formed and why their lending is so important to the State and vice versa. Once they get into each country case study, they begin with the Bank of England and how England’s wars with Louis XIV led to its formation. From there it goes over in depth the unique agrarian makeup of the US banking system and how national banks came into being during the Civil War. It then dives into the Canadian banking system and its appeared stability. From there historically authoritarian states are explored like Mexico and Brazil. Their implementation of inflation taxes and state controlled banks causes all sorts of unrest. I learned more about Brazil than I ever thought I would, specifically with demographics.
While history is a huge part of the book, it does a wonderful job showing how certain policies really affect banks and lending practices. The writers make a concerted effort to be as fair and non-biased as possible which I believe does show. If there was anything they were really trying to prove it’s that macro-prudential regulation is far more effective than micro-prudential regulation in creating a healthy stable banking system. I enjoyed the book and will probably come back to it in the near future.
Unfortunately I thought Basil was not ready for this book. He was not only very dry and robotic but mispronounced quite a bit including Monaco, Curacao, and Econometrics. Those were examples just off the top of my head. I know there were more.