tailieunhanh - Lecture Money, banking, and financial markets: Chapter 14 - Stephen G. Cecchetti, Kermit L. Schoenholtz

Chapter 14 - Regulating the financial system. The purpose of this chapter is: To look at the sources and consequences of financial fragility focusing on the banking sector, to look at the institutional safeguards the government has built into the system in an attempt to avert financial crises, to study the regulatory and supervisory environment of the banking industry, to examine emerging approaches to regulation that focus on the safety of the financial system rather than on individual institutions. | Chapter Fourteen 14- Introduction Disruptions to the financial system are surprisingly frequent and widespread. Financial crises have not only been expensive to clean up, but they have had a dramatic impact on growth in the countries where they occurred. Figure plots information on the fiscal cost and economic impact of banking crises between 1970 and 2007. 14- 14- Financial Crisis Banking crises are not a recent phenomenon: The history of commercial banking over the last two centuries is replete with periods of turmoil and failure. Financial systems are fragile and vulnerable to crisis. But when a country’s financial system collapses, its economy goes with it. When government oversight fails, the costs can be enormous. 14- Introduction The purpose of this chapter is: To look at the sources and consequences of financial fragility focusing on the banking sector. To look at the institutional safeguards the government has built into the system in an | Chapter Fourteen 14- Introduction Disruptions to the financial system are surprisingly frequent and widespread. Financial crises have not only been expensive to clean up, but they have had a dramatic impact on growth in the countries where they occurred. Figure plots information on the fiscal cost and economic impact of banking crises between 1970 and 2007. 14- 14- Financial Crisis Banking crises are not a recent phenomenon: The history of commercial banking over the last two centuries is replete with periods of turmoil and failure. Financial systems are fragile and vulnerable to crisis. But when a country’s financial system collapses, its economy goes with it. When government oversight fails, the costs can be enormous. 14- Introduction The purpose of this chapter is: To look at the sources and consequences of financial fragility focusing on the banking sector. To look at the institutional safeguards the government has built into the system in an attempt to avert financial crises. To study the regulatory and supervisory environment of the banking industry. To examine emerging approaches to regulation that focus on the safety of the financial system rather than on individual institutions. 14- Banks should be no different from restaurants: new ones should open and unpopular ones close. If a bank closes, you lose your ability to make purchases and pay your rent. Everyone expects the government to safeguard banks. The Sources and Consequences of Runs, Panics, and Crises 14- The Sources and Consequences of Runs, Panics, and Crises Banks’ fragility arises from the fact that they provide liquidity to depositors. They allow depositors to withdraw their balances on demand. If a bank cannot meet this promise of withdrawal on demand because of insufficient liquid assets, it will fail. 14- The Sources and Consequences of Runs, Panics, and Crises Banks also promise to satisfy depositors’ withdrawal requests on a first-come,