Abstract
The growth of the financial system modestly influences the growth of the economy, while sharply increases the instability of the system. We do not live much better if the water supply pumps more water, but a failed water supply ruins our lives. During the Glass-Steagall period, structural separation keeps the asymmetry at bay. Innovative investment banking makes waves in capital markets freely, while protected by a legal wall, the dull commercial banking is what it is supposed to be, dull. The financial industry’s most devastating social impact emerges from the impact financial crises have on political stability. The failure of a large bank creates such a disruption that regulators reached a consensus that such banks should not “fail disorderly”.
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Notes
- 1.
Engler and Essinger (2000).
- 2.
Litan (2019).
- 3.
Jusufi (2017).
- 4.
The task of keeping Germany adequately supplied with currency notes became a major logistic operation involving “133 printing works with 1783 machines … and more than 30 paper mills” (Liaquat, 2009) Kindle loc 1868.
- 5.
Voth, Peydró, and Doerr (2019).
- 6.
“For example, practically all of the studies that have been provided in support of Basel III assume that there is a cost to society when banks issue new equity, but these studies do not provide a satisfactory explanation of this assumption.” (Admati & Hellwig, 2014, p. 180).
- 7.
Borio, Drehmann, and Xia (2018).
- 8.
Glossary—Model of optimisation of a bank’s profitability.
References
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Jusufi, I. (2017, April). Albania’s Transformation since 1997: Successes and failures. Croatian International Relations Review, 23, 81–115.
Liaquat, A. (2009). Lords of finance, Penguin Books. ISBN1440697965.
Litan, R. E. (2019, November). https://www.bbvaopenmind.com. Retrieved from https://www.bbvaopenmind.com/en/articles/financial-innovation-a-balanced-look/.
Voth, H.-J., Peydró, J.-L., & Doerr, S. (2019, April 16). https://www.weforum.org. Retrieved from https://www.weforum.org/agenda/2019/04/how-failing-banks-paved-hitlers-path-to-power-financial-crisis-and-right-wing-extremism-in-germany-1931–33/.
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Odak, D. (2020). The Asymmetry. In: A Political Economy of Banking Supervision. Springer, Cham. https://doi.org/10.1007/978-3-030-48547-4_5
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