Banks on the brink: global capital, securities markets, and the political roots of financial crises

Table of Contents 1. The politics and economics of financial instability 2. Banking crises, capital flows, and financial market structure 3. Capital inflows, market structure, and banking crises: empirical evidence 4. O Canada? Unraveling the mystery of Canadian bank stability 5. Finanzplatz Deutschland: German bank stability and its decline 6. Policy responses: what to do (and not to do) about financial instability.

This innovative analysis investigates a complex issue of tremendous economic and political importance: what makes some countries vulnerable to banking crises, while others emerge unscathed? Banks on the Brink explains why some countries are more vulnerable to banking crises than others. Copelovitch and Singer highlight the effects of two variables in combination: foreign capital inflows and the relative prominence of securities markets in the domestic financial system. Foreign capital is the fuel for banks' potentially dangerous behavior, and banks are more likely to take on excessive risks when operating in a financial system with large securities markets. The book analyzes over thirty years of data and provides historical case studies of two key countries, Canada and Germany, each of which explores how political decisions in the 19th and early-20th centuries continue to affect financial stability today. The analyses in this book have crucial policy implications, identifying potential regulations and policies that can work to protect banking systems against future crises. Stresses the under-explored relationship between banking systems, securities markets, and financial crises, illuminating the profound impact of factors on subsequent crises Highlights the impact politics has on the development of a nation's financial markets, across space and time, in order to point out when and why banking systems become more prone to crisis Uses comprehensive data analysis, in tandem with two historical case studies, Canada and Germany, in order to expand the study of financial crises beyond singular events and focus on enduring, institutional factors