17 Pages Posted: 18 Jun 2016
Date Written: June 2016
Fragile by Design suggests a unifying explanation for systematic differences across countries in the domestic supply of credit and the susceptibility of banking systems to failure. The centrepiece is a theory of “The Game of Bank Bargains” (“the Game”), which is played between bankers, governments, and those with political power – from aristocratic elites and oligarchs, to unions and farmers’ coalitions. The implicit bargains they strike determine whether credit is abundant or restricted and whether the banking system is stable or crisis-prone. The strength of the book lies in its assembly of the vast history of the chartered bank as an institution and integration of this history into the history of the various countries studied. The book’s ultimate message is sobering: countries do not “choose” their banking systems, but rather they “get” a banking system consistent with the institutions that govern the distribution of political power within their societies. Reform is possible but the challenges go well beyond getting the technical regulation of banks right. The main limitations of the theory reflect its focus on national determinants in an age of globalization, and the non-observable nature of the bargains that determine national outcomes. This limits the predictive power of the model.
Keywords: banks, credit, crises, regulation
JEL Classification: G21, G28
Suggested Citation: Suggested Citation
Ciuriak, Dan, Book Review: 'Fragile by Design: The Political Origins of Banking Crises & Scarce Credit' by Charles W. Calomiris and Stephen H. Haber (June 2016). Available at SSRN: https://ssrn.com/abstract=2797098