Banks on the brink : global capital, securities markets, and the political roots of financial crises

"Banks on the Brink explains why some countries are more prone to systemic bank failures than others. We focus on the political decisions that shape the structure of financial markets and the international economic forces that make some countries especially vulnerable to financial instability. We highlight the effects of two variables in combination: foreign capital inflows and financial market structure - specifically, the relative prominence of securities markets versus commercial banking in the domestic financial system. Foreign capital is the fuel for banks' potentially dangerous behavior, whereas banks are more likely to take on excessive risks when operating in a financial system with large securities markets. The study of banking necessarily leads to a focus on politics, but not in the way that many observers might imagine. Bankers themselves have political preferences and may express them publicly, and some banks lobby for favorable public policies and donate to political campaigns and political action committees. But at a deeper level, banks are embedded in financial markets, which themselves reflect an accumulation of government choices. Banks today operate in an environment shaped by these choices, some of which make banks more resilient, others of which make them more prone to crisis."