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Crises and OpportunitiesThe Shaping of Modern Finance$
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Youssef Cassis

Print publication date: 2011

Print ISBN-13: 9780199600861

Published to Oxford Scholarship Online: May 2011

DOI: 10.1093/acprof:oso/9780199600861.001.0001

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Banks

Banks

Chapter:
(p.53) 3 Banks
Source:
Crises and Opportunities
Author(s):

Youssef Cassis (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199600861.003.0004

Massive bank runs and a succession of bank failures are only one aspect of banking crises, and not necessarily the main one as far as large banks are concerned. The main issue has been whether the banks had become too big to fail, which implies that big banks no longer fail in times of financial crises, though they can run into serious difficulties. One corollary of this situation is that banks could or should be cut down to size in order to avoid pitfalls: on the one hand, the ‘moral hazard’ created by the certainty of being bailed out in case of failure, and, on the other hand, the systemic effects of the collapse of a big bank. This chapter discusses these issues from a historical perspective, by considering how banks have fared in the wake of eight major financial crises that have shaken the advanced economies since 1890. Three main questions are addressed in this chapter. First, to what extent have big banks actually been allowed to fail? Second, have financial crises been followed by waves of consolidation? And, third, how have large banks performed in the aftermath of a crisis — especially in terms of growth and profits?

Keywords:   financial crisis, banking crisis, bank failures, big banks, consolidation

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