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How can interactions among interdependent structures, institutions, and agents inform financial stability? What we have still to learn from global financial crisis

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Abstract

How national financial systems can avoid costly banking crises is a persistent and intriguing question for institutional scholars and policymakers worldwide. In this context, although considerable research has recently focused on structural, institutional, and agency-level factors in explaining the global financial crisis, it mostly offered each of these explanatory factors in isolation, thus leaving interactions among these interrelated factors incomplete. Building on a deviant case study on Australian exceptionalism examined in a comparative perspective, this paper introduces an integrative framework that views financial stability as a function of these interactions that reinforce prudent financial behavior. In doing so, it offers an insight into the previous research on institutional complementarity and how to guard against similar crises in the future. It suggests that financial stability (instability) is more likely when interactions among structural and institutional complementarities and agents reinforce conservative (opportunistic) banking.

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Notes

  1. Author thanks Peter Katzenstein and referees of the journal for their insightful comments and John Laker for his generous support and encouragement .

  2. Active citation refers to ‘a technologically enabled citation standard, according to which any citation in a scholarly paper, article, or book chapter that supports a contestable empirical claim is hyperlinked to an excerpt from the original source and an annotation explaining how that excerpt supports the empirical claim, located in a ‘transparency appendix’ attached to the document’ (Moravcsik 2014, p. 48).

  3. Policy is ‘an instrument of government’ and arises from within an ‘institutional framework’ (Howlett and Lejano 2012, p. 347). It also informs institutions’ and actor behavior by ‘influencing the allocation of economic and political resources, modifying the costs and benefits associated with alternative political strategies, and consequently altering ensuing political development’ (Pierson 1993, p. 596). This section locates ‘policy’ theme under the ‘institution’ dimension of the emerging framework. This is due to difficulty in separating, for example, prudential regulation from prudential policy, or competition regulation from competition policy in informing actor behavior, and the limited analytical value of doing so in the current research context.

  4. Section 63 of the Banking Act 1959 established an institutional framework requiring the Treasurer’s approval before any party may purchase more than a 15 % share of bank’s voting rights.

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  1. Department of International Relations, College of Administrative Sciences and Economics, Koç University, Rumelifeneri Yolu, 34450, Sariyer, Istanbul, Turkey

    Caner Bakir

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Bakir, C. How can interactions among interdependent structures, institutions, and agents inform financial stability? What we have still to learn from global financial crisis. Policy Sci 50, 217–239 (2017). https://doi.org/10.1007/s11077-016-9261-1

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