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Wall Street’s central role in the panic of 1907 generated an outcry about the speculative manipulation of the country’s securities markets and eventually a groundswell of support for structural reform of the nation’s financial system. Initially, Wall Street was well positioned to shape reform but, as the debate unfolded, it found itself on the defensive as the object, rather than the architect, of change. On issues where political reformers and Wall Street bankers were at odds, therefore, the bankers lost. There was, however, one issue on which their views converged and that was the need to root out the evil of the call market from the nation’s financial system. For that reason, a central aim of the Federal Reserve Act of 1913 was to loosen the link the call market created between the country’s banking system and the securities markets.

The Nigerian banking system was in crisis for much of the 1990s and the early 2000s. The reforms of 2005 were ambitious in simultaneously attempting to address safety, soundness, and accessibility. This paper uses published and new survey data through 2008 to investigate whether bank consolidation and other measures achieved their stated goals and whether they also enhanced development, efficiency, and profitability. Following the reforms, banks are better capitalized, more efficient, and less involved in the public sector but not more profitable and accessible to the poor. While there is greater supervision and less fragility, recorded distress was artificially low. The improved macroeconomic environment also explains some of the variation in observed outcomes and likely enhanced the efficacy of reforms.

In recent years, Argentina has undertaken a sweeping reform of its system of prudential supervision, particularly in the aftermath of the tequila crisis in 1994, by using greater reliance on market discipline to promote a safe and sound banking system. This chapter outlines what changes Argentina has made in its supervisory system and assesses how well these changes have worked to create credible market discipline of the banking system. The chapter is organized as follows. Section 5.2 summarizes the experiences with privatization, foreign entry, consolidation, bank failure, and depositor loss. Section 5.3 focuses on differences in bank deposit interest rate risk premiums and in deposit growth, with an emphasis on the degree of diversity within the system with respect to these measures of market discipline. It then develops a framework for identifying links between fundamentals that affect bank default risk and market reactions to that risk (as seen through higher interest rates on deposits and lower deposit growth). Finally, it considers evidence on the effectiveness of market discipline in constraining bank risk taking. Section 5.4 concludes. A commentary and discussion summary are also included at the end of the chapter.

New York and Los Angeles together helped create the 2007–08 financial crisis, with each playing a different role. The Los Angeles region was a major driver of the real estate bubble. New York's Wall Street firms, in turn, invented and promoted key financial instruments, especially Credit Default Swaps that fueled the mortgage lending spree. Wall Street also pushed deregulation, which facilitated the excesses. This chapter discusses the key roles of New York and Los Angeles in the crisis. It considers various calls for reform, especially in two ongoing policy issues—managing the power of the banks, and what to do about homeowners in financial trouble.

This chapter examines the banking reform measures adopted by various countries such as the UK and the United States in the wake of the financial crisis of 2008. It first considers the wave of regulatory reform proposals aimed at rescuing ailing banks, including legislation such as the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States. It then turns to the paradigm of insurance in relation to bank capital, leverage, and liquidity, with particular emphasis on how to reduce the insurable interest of government via time-consistent bank liquidity arrangements in a crash. It also discusses the wisdom of ‘macroprudential’ regulation and questions concerning bonuses, governance, and incentives in the banking sector. Finally, the chapter analyzes ‘institutional’ issues arising from banking reforms.

This chapter aims to collect and report cross-country data on bank regulation and ownership; and to evaluate the links between different regulatory/ownership practices and both financial sector performance and banking system stability. In so doing, it hopes to help fill the gap between the questions posed by policymakers about how to reform banking systems and the currently available evidence on the issue produced by researchers. The chapter examines the following questions: Firstly, do countries with regulations that impose tighter restrictions on the ability of commercial banks to engage in securities, insurance, and real estate activities have (a) less efficient but (b) more stable financial systems? Secondly, do countries that restrict the mixing of banking and commerce—both in terms of banks owning nonfinancial firms and nonfinancial firms owning banks—have (a) less efficient but (b) more stable banking systems? Thirdly, do countries in which state-owned banks play a large role have more poorly functioning financial systems? A commentary and discussion summary are also included at the end of the chapter.

This essay discusses the relationship between the Republicans’ antebellum economic agenda and the events of the Civil War. The essay appears to begin aligned with the big argument that the Republicans were intent on changing the national economy, and the war provided a useful opportunity to do so.

The banking systems of most Latin American countries are small, concentrated, and inefficient. Financial markets do not serve as substitutes for banks: few firms can mobilize capital through the markets, and even the largest exchanges tend to be dominated by one or two issues. What effects do underdeveloped financial markets and banking systems have on the real economy? Do imperfections in capital markets serve as barriers to entry? If so, do financial barriers to entry have an effect on the competitive structure and performance of industry? This chapter addresses these questions by analyzing the cases of Brazil and Mexico during their first major periods of banking and financial market reform: the years 1880 to 1930. It is organized as follows. The first section compares the institutional history of financial intermediaries and textile mill financing in Brazil and Mexico. The second section assesses changes in the size and competitive structure of each country's textile industry in light of their histories of industrial finance. The third section presents estimates of total factor productivity growth. The fourth section concludes.

This chapter begins with Vandenberg’s 1928 appointment to the Senate, detailing his credentials as a moderate reformer within the Republican fold and his defense of the Supreme Court’s independence. When possible, he sought the middle ground and served as a liaison between the president and the Senate. Appointed to the Committee on Foreign Relations in 1929, Vandenberg’s views paralleled President Hoover’s for the most part, with a mix of nationalism and guarded internationalism. Vandenberg saw President Roosevelt successfully carrying out reforms that Hoover had been unable or unwilling to enact. However, the Michigan senator was never fully in step with FDR’s New Deal, feeling that the executive branch would receive too much authority at the expense of the legislative branch. This disillusionment helped increase his influence in the Republican Party.

This book has explored the causes and consequences of events leading up to the financial crisis of 2008. It has discussed global imbalances, reckless mortgage lending, unsustainable housing booms, and the malign use of financial instruments, as well as the overly narrow focus of monetary policy, the bank rescue efforts of policymakers, and the proposed reforms and other solutions aimed at saving ailing banks. A range of deeper and more troubling questions remain unanswered, however: why public policy had so little to say about the dangers as they were growing; why so little was done to avert disaster before it was too late; why those who worried were not heard, and those who were heard were not worrying; whether a crash really had to happen before there was political capital to be made out of doing anything about it. A more fundamental question is why the crash was allowed to happen, rather than why it happened.