Monday, 8 February 2016

Quote of the Day: Two different crises, two different regulatory regimes

“The banking crisis that began in August 2007 shocked markets and
precipitated the Great Recession. To fully explain the banking crisis,
one must account for its timing, severity, and global impact. One must
also confront a startling historical contrast.
    “If we define ‘banking crisis’ to mean bank failures and system losses
exceeding 1 percent of a country’s gross domestic product (GDP), we
find that in the period 1875-1913, a period of [light regulation,] marked
expansion in international trade and capital flows comparable to the last three decades, there were only four banking crises worldwide.
    “By contrast, in the period 1978-2009, a period of much more extensive
bank regulation, central bank intervention, government protection of
depositors and other bank creditors, and government control of mortgage
markets, about 140 banking crises occurred worldwide. Of these, 20 were
more severe than any crisis from the earlier period of 1875-1913 . . . ”

~ Mark Perry & Robert Dell, in their article How Government Failure Caused the Great Recession

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