Chapter

Banks

Youssef Cassis

in Crises and Opportunities

Published in print April 2011 | ISBN: 9780199600861
Published online May 2011 | e-ISBN: 9780191724930 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199600861.003.0004
Banks

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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

Chapter.  6904 words. 

Subjects: Financial Institutions and Services

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