The Fragility Of Banking Systems Essay

The Fragility Of Banking Systems Essay

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In this exploratory study, business economists, Charles Calomiris and Stephen Harber, explain the fragility of banking systems in the United States and several other countries. In contrast, Calomiris and Harber compare the unstable banking societies to that of Canada; who’s banking system is robust and competitive. They propose that unstable banking systems, like the U.S.’s, are fragile by design because of the political motivations within banking regulations. More specifically, because banks need governments and governments need banks, their transactions with one another builds these conflicts of interests in a game the authors term the “bank bargain”.
Since the late 1800s, the United States has had frequent, if not routine, banking crises but Canada has had very few. Analyzing the economical and political histories of the United States, United Kingdom, Canada, Mexico, and Brazil, Calormiris and Harber (2014) demonstrate how banking crises are more than just a bunch of random economic events. These “events” result from bargains that governing bodies make with banks in an effort to push their own political agenda. Such an agenda often works against the betterment of society, and if failed, on the pockets of taxpayers. Thus the stability of banks relies on the ability to balance and limit the self-interests of these groups and in turn influence government regulations on banking systems.
First and foremost, Calomiris and Harber (2014) establish claims to support the essentialness of a government-banker relationship. They assert, “Every nation-state has some form of government-chartered bank” (p. 97). Similarly every nation has some form of a modern government to sustain political power. The authors claim that the instability with...


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... and determine its relatedness in the stability of banking systems.
Business economists, Calomiris and Harber do a well enough job of explaining the principles behind baking systems’ risks as they correspond to political systems. They state, “Leaving politics out of the theory of banking crises truly omits the prince from the play.” (p. 695) However, considering the history and evolution of the United States’ political system, can the nation really separate politics from financial governance? Understanding and developing a system like that of Canada would take time and patience, an item that is both scarce and costly. Fragile by Design should be a thoughtful, structural narrative of the state of banking systems, a book to inspire discussion and debate, instead of a reform for political and banking systems because there are too many pieces missing from the picture.

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