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Macro Musings with David Beckworth
Emil Verner on Banking Crises, Credit Booms, and the Rise of Populism
Nov 18, 2024
Emil Verner, an associate professor at MIT Sloan and a research fellow at the National Bureau of Economic Research, dives into the intricate world of banking crises and credit booms. He discusses the historical patterns of bank failures and how solvency issues often precede crises, challenging the traditional narrative of panic-induced bank runs. Verner also links financial turmoil to the rise of populism, particularly in Hungary, showcasing how economic distress reshapes political landscapes. His insights highlight the vital need for robust regulatory frameworks to ensure financial stability.
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Quick takeaways
- Bank failures can stem from weak fundamentals over liquidity issues, emphasizing the need for improved regulatory measures focused on solvency.
- Financial crises trigger populist movements as societal tensions between creditors and debtors intensify, necessitating policies to alleviate economic disparities.
Deep dives
The Importance of Banking Stability
Banking panics and financial stability are critical issues in macroeconomics, as highlighted through recent crises such as the 2023 turmoil involving banks like Silicon Valley Bank and Credit Suisse. These events show that financial crises not only disrupt economic activities but also contribute to longer-term issues such as populism and slow recoveries. Banks play a unique role in interlinking savers and borrowers, meaning that their failures can lead to larger economic downturns, affecting overall societal stability. Understanding the implications of banking failures is crucial for implementing better regulatory policies and crisis management strategies.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode