Macro Musings with David Beckworth Emil Verner on Banking Crises, Credit Booms, and the Rise of Populism
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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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Importance of Financial Stability
- Banking crises disrupt the economy by impairing capital intermediation and payment systems.
- These crises have far-reaching consequences for broader society and the political system.
Bank Failure Theories
- The liquidity view suggests bank runs cause failures even in solvent institutions.
- The solvency view argues that fundamental weaknesses drive insolvency, leading to runs.
Structural Factors in Banking Crises
- Structural factors like lack of diversification made U.S. banks vulnerable in the 19th century.
- Even diversified banking systems can experience crises due to lending booms and optimism.
