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SUMMARY:'Historical Banking Crises and the Rules of the Game' - Professor 
 Charles Calomiris\, Columbia Business School
DTSTART:20091207T170000Z
DTEND:20091207T190000Z
UID:TALK20751@talks.cam.ac.uk
CONTACT:D'Maris Coffman
DESCRIPTION:When and why do banking crises occur? Banking crises properly 
 defined consist either of panics or waves of costly bank failures. These p
 henomena were rare historically compared to the present. A historical anal
 ysis of the two phenomena (panics and waves of failures) reveals that they
  do not always coincide\, are not random events\, cannot be seen as the in
 evitable result of human nature or the liquidity transforming structure of
  bank balance sheets\, and do not typically accompany business cycles or m
 onetary policy errors. Rather\, risk-inviting microeconomic rules of the b
 anking game that are established by government have always been the key ad
 ditional necessary condition to producing a propensity for banking distres
 s\, whether in the form of a high propensity for banking panics or a high 
 propensity for waves of bank failures. \n\nSome risk-inviting rules took t
 he form of visible subsidies for risk taking\, as in the  historical state
 -level deposit insurance systems in the U.S.\, Argentina’s government gu
 arantees for mortgages in the 1880s\, Australia’s government subsidizati
 on of real estate development prior to 1893\, the Bank of England’s disc
 ounting of paper at low interest rates prior to 1858\,and  the expansion o
 f government-sponsored deposit insurance and other bank safety net program
 s throughout the world in the past three decades\, including the generous 
 government subsidization of subprime mortgage risk taking in the U.S. lead
 ing up to the recent crisis. \n\nOther risk-inviting rules historically ha
 ve involved government-imposed structural constraints on banks\, which inc
 lude entry restrictions like unit banking laws that constrain competition\
 , prevent diversification of risk\, and limit the ability to deal with sho
 cks. Another destabilizing rule of the banking game is the absence of a pr
 operly structured central bank to act as a lender of last resort to reduce
  liquidity risk without spurring moral hazard. \nRegulatory policy often r
 esponds to banking crises\, but not always wisely. The British response to
  the Panic of 1857 is an example of effective learning\, which put an end 
 to the subsidization of risk through reforms to Bank of England policies i
 n the bills market. Counterproductive responses to crises include the deci
 sion in the U.S. not to retain its early central banks\, which reflected m
 isunderstandings about their contributions to financial instability in 181
 9 and 1825\, and the adoption of deposit insurance in 1933\, which reflect
 ed the political capture of regulatory reform.\n\nThere are still some spa
 ces available at a seated dinner to begin at 7.30 in college. If you are i
 nterested in joining us\, please contact Dr Coffman (ddc22)
LOCATION:Lucia Windsor Room\, Newnham College
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