DeepDyve eBooks - A Political Economy of Banking Supervision

Odak, Damir

Pages: 1 –13

[The banking provides the perfect breeding ground for the moral hazard. Banks create externalities called “financial or banking crises”. When crises occur, they cause immense damage to everyone. A critical feature of banking is its interconnectedness. It causes spread of the failure through the...

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Chapter 2How that All Come to Be?

Odak, Damir

Pages: 15 –24

[Finance is, always was and always will be a source of instability. By putting volatility into motion and controlling it, finance provides tremendous service. Bankers create money out of thin air—how could that be stable? The fruits of this instability facilitate trade, production and employment...

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Chapter 3Big Depression—Events Forcing the Regulator’s Hand

Odak, Damir

Pages: 25 –30

[The consequence of relying on market discipline to guide finance is the worst global economic crisis ever. President Roosevelt decides to intervene radically. He stabilises heavily distressed banking by the introduction of deposit guarantee, strong supervision and structural separation. This...

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Chapter 4Great Recession—The Ugly Daughter of Deregulation

Odak, Damir

Pages: 31 –37

[The banking system in the Western world is stable during the Glass-Steagall period, from 1935 until the beginning of the “great recession”. Until the implementation of the Act, there are periodic banking crises in the US, followed by depressions. After 1935 there is no major banking crisis or...

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Chapter 5The Asymmetry

Odak, Damir

Pages: 39 –47

[The growth of the financial system modestly influences the growth of the economy, while sharply increases the instability of the system. We do not live much better if the water supply pumps more water, but a failed water supply ruins our lives. During the Glass-Steagall period, structural...

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Chapter 6How Can Supervision Prevent Financial Crises?

Odak, Damir

Pages: 49 –58

[Supervision cannot prevent market disturbances, potentially causing a crisis. It retains its impact through long-term measures making the banking system more resilient to externals shocks. This process consists of five steps: setting standards, licencing, oversight, rectifying action and...

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Chapter 7What Should Supervision Do?

Odak, Damir

Pages: 59 –71

[The supervision decides how much capital each bank needs. If new capital does not bring pro-rata new income, the return on the existing shares will decrease. Their value will fall. That is the reason why an increase in the capital never happens without compulsive regulation. A short trip through...

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Chapter 8What Supervisors Should Not Do?

Odak, Damir

Pages: 73 –78

[Supervisors should not receive other tasks besides improving the resilience of the banking system. There are at least three reasons why it is not a good idea: distracting focus, public pressure on supervisor not related to supervision and the conflict of interest. A broader scope of supervisory...

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Chapter 9Basel 1, 2, 3, 3&1/2

Odak, Damir

Pages: 79 –90

[The Basel Accord is an international standard in banking supervision. It is an agreement between supervisors. Based on it, jurisdictions create regulation. BiS checks compliance of authorities with the standard. Basel I—first international standard in banking supervision appears in 1988, 14...

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Chapter 10Bank Failure and Resolution

Odak, Damir

Pages: 91 –104

[The perfect banking system would be too expensive. Therefore, the failure of banks is imminent, and we should be ready for it. Failing of individual weak banks is acceptable. However, only if the failure is correctly managed. The failed bank goes through resolution. It is a deliberately vague...

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A Political Economy of Banking Supervision

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A Political Economy of Banking Supervision

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