Book contents
- Frontmatter
- Contents
- List of illustrations
- Acknowledgements
- List of abbreviations
- 1 A beginner's guide to central banking
- 2 Very boring guys?
- 3 Wind in the willows: the small world of central banking c. 1900
- 4 Something for everyone: new central banks, 1900–1939
- 5 A series of disasters: central banking, 1914–1939
- 6 The mysteries of central bank cooperation
- 7 The first central banking revolution
- 8 No time for cosmic thinkers: Central banking in the ‘Keynesian’ era
- 9 Rekindling central bank cooperation in the Bretton Woods era
- 10 The goose that lays the golden egg: Central banking in developing countries
- 11 The horse of inflation
- 12 The second central banking revolution: Independence and accountability
- 13 Reputations at stake: financial deregulation and instability
- 14 Inflation targeting: the holy grail?
- 15 The long march to European monetary integration
- 16 A world with half a million central bankers
- References
- Index
13 - Reputations at stake: financial deregulation and instability
Published online by Cambridge University Press: 04 February 2011
- Frontmatter
- Contents
- List of illustrations
- Acknowledgements
- List of abbreviations
- 1 A beginner's guide to central banking
- 2 Very boring guys?
- 3 Wind in the willows: the small world of central banking c. 1900
- 4 Something for everyone: new central banks, 1900–1939
- 5 A series of disasters: central banking, 1914–1939
- 6 The mysteries of central bank cooperation
- 7 The first central banking revolution
- 8 No time for cosmic thinkers: Central banking in the ‘Keynesian’ era
- 9 Rekindling central bank cooperation in the Bretton Woods era
- 10 The goose that lays the golden egg: Central banking in developing countries
- 11 The horse of inflation
- 12 The second central banking revolution: Independence and accountability
- 13 Reputations at stake: financial deregulation and instability
- 14 Inflation targeting: the holy grail?
- 15 The long march to European monetary integration
- 16 A world with half a million central bankers
- References
- Index
Summary
Society supports banking regulation because it believes it will ensure a more stable banking system. It supports deregulation because of a belief that regulation leads to inefficient markets. The relative strength of these arguments is difficult to determine because the stability rationale is macro in scope while the efficiency argument is micro in scope.
R. C. West, Federal Reserve Bank of Kansas City (1983: 362)If financial instability occurs, costs to society may be high. Damage to our reputation could be potentially high too.
Sir Andrew Large, Bank of England, 2005 (quoted in Kapstein 2008: 122)Rapid financial innovation, sweeping changes in the mechanisms of financial regulation and supervision, growing competition between financial institutions, internationalisation, and a dramatic increase in the frequency and seriousness of financial crises were important features of the final third of the twentieth century. Perhaps the intensity of financial regulation exhibits a cyclical pattern, equivalent to the long swings in CBI identified by Goodhart, Capie, and Schnadt (1994: 48–9). Financial regulation was tightened after the depression. By the late 1960s, however, regulation was coming to be seen as a drag on efficiency. This re-evaluation led to more than thirty years of financial liberalisation. We might now be witnessing the beginnings of another reversal in the wake of the crisis of 2007–9. The degree of risk that society is prepared to tolerate in the financial system may be a function of time since the last disaster.
- Type
- Chapter
- Information
- Central Banking in the Twentieth Century , pp. 222 - 240Publisher: Cambridge University PressPrint publication year: 2010