Columbia Business School
Ideas At Work
August 21, 2014
This is the first book that takes an in-depth look at the connection between politics and banking crises. What led you to the topic?
Stephen Haber at Stanford and I spent the better part of the last 30 years working separately on issues of banking system risk. And that work kept revealing the impact of political influences on banking systems.
If you talk to anyone who’s ever run a bank, or any journalist who covers banking in depth, they’ll tell you that politics is hugely important. Yet in a lot of academic analyses, politics is little more than a footnote. We wanted to know — especially in light of the most recent crisis, but also of the last 35 years, in which over a hundred countries — including countries as different as England, Russia, Argentina, and Iceland — have experienced banking crises, why banking systems are sometimes dysfunctional and sometimes successful, and why some countries manage to make transitions from dysfunctional systems to functional ones.
And we wondered if politics was critical to understanding that. And so we began to examine various countries’ banking histories in light of their political histories: where a country’s constitution came from, how it was settled, what system of government it has. We saw that these factors might be the main drivers of banking function or dysfunction, both in terms of instability and scarce credit. Having researched this subject for three decades, we knew that this was more than plausible. It was the story.
Read the entire interview in Ideas At Work