Banking crisis, determinants and consequences. Have they lessons for today

general courses

As long as banks exist there have been crises of confidence. The words banking and panic, bank runs are firmly linked. In this course the historical banking crises will be presented, and the ways how the financial crises arise, how they are influenced by the political and economic turmoils, and determinants and consequences of banking crashes will be discussed. The course will include the questions of development of legal regulations, evolution of bank regulations and the role of central banking (the presence of a lender of last resort affects the solvency of the banking system, but is conducive to moral hazard). Banking crashes appeared to be common in some countries and periods, while rather rare in the other.

Requirements:

grading will be based on: paper, participation, activity.

1. Theory: definitions – financial crisis, banking crisis, currency crisis, models of financial, banking, currency crises, determinants of a banking crisis.

2. Influence of economic crisis on a banking crisis, main types of the banking crises, banking crisis vs. currency crisis, currency crisis vs. banking crisis, costs of crises.

3. Banking system stability as a public wealth, need for protection of activities against crises, security network; hazard identification; symptoms, alert systems, banking institutions evaluation (rating) systems.

4. Historical banking crises – empirical specification: the case of a crash of Italian banking houses in 14-16th centuries – reasons, consequences; collapse of the European finance institutions in 16-17th centuries; bankruptcies of Spain and France – growth of public banking; evolution of a public debt.

5. Empirical specification of banking crises and easy-money speculations in 17-18th centuries; Holland’s banks and the tulip bubble 1637; Britain’s South Bubble Sea, John Law system and the French banking; collapse of the bankers financing speculations.

6. Economic crises and banking crashes in 19th century. Financial crisis and economic crisis, a mechanism of overinvestment; transfers and infections at a multinational scale, panic and bank runs mechanism.

7. Banking crises (by the late 19th century): emergence of legal regulations; British leading financial institutions; the financial responsibility; the Bank of England as a lender of last resort. The conditions of French, German and Polish private banking; creation of the Federal Reserve System. Models of the banking systems: British, Continental (German) - or Rhine and Anglo-Saxon - and the banking system in the US.

9. European banking after the 1st World War; Polish banking and currency crisis (1925): a problem with banking risk, especially the risk of interest rate and exchange rate.

10. The Great Depression: the Wall Street crash and the phenomena of bank bankruptcies – their reasons; spectacular bank runs; attempt to explain their reasons and mechanisms with the use of present day theories.

11. Consequences of the Great Depression: legal regulations, emergence of the regulatory agencies in the US. The Glass Steagall Act and the regulation of a traditional banking activity. Bankesr’s deposits insurance systems; Banking supervisory boards; supervision over capital markets; evolution of the banking regulations in Europe (Germany, England, France).

12. The Great Depression and the Polish banking system; growing position of the state banks; crises of the private banking sector.

13. Banking crises in the 1980s. and 1990s. in the stable economies: Scandinavian countries, USA (crash of individual banks in the 1980s. and crash of LTCM in 1998), Great Britain (1990-91, 1995), Japan (1994-1995, 1997). Crisis management and restoration of banking systems.

14. Financial crises in the 1990s. in the emerging economies: specificity of crises in Asia; structural weakness of the Asian economies; significance of the behavioral factors: panic, herd effect; restoration programs, costs, case study – Crisis in Indonesia and South Korea.

Baka W., Systemy gwarantowania depozytów w Polsce i na świecie, Warszawa 2005

Bordo M. D., The Lender of Last Resort: Alternative Views and Historical Experience, Federal Reserve Bank of Richmond, “Economic Review”, Jan./Feb.1990. http://richmondfed.org.publications/research.

Chancellor E., Historia spekulacji finansowych, Warszawa 2001

Capiga M., Ryzyko w działalności banku, [w:] Działanie banków uniwersalnych. Wybrane problemy, Wyd. AE Katowice, 2000,

Calomiris C., Gorton G., The Origins of Banking Panic: Models, Facts and Bank Regulation, University of Chicago Press, Chicago 1991

Cameron R. (red.) Banking and Economics Development. Some Lessons from History, Oxford 1972

Cameron R., Bovkin V. I.(red.), International Banking 1870-1914, New York 1991

Capie F. H. (red.), History of Banking 1650-1850, London 1993

Cull R., Senbel L., Sorge M., Deposit Insurance and Bank Intermediation in the Long Run, BIS Working Papers, July 2004, No 156

Gavin M., Hausmann R., The Roots of Banking Crises: The Macroeconomic Context, Inter-American Development Bank, Jan. 1998

Hibbert C., Medyceusze. Wzlot i upadek, Łódź 1992

Iwanicz - Drozdowska M., Determinanty bezpieczeństwa banków w świetle analizy wybranych kryzysów bankowych, SGH Warszawa 2000

Iwanicz-Drozdowska M. (red.), Kryzysy bankowe. Przyczyny i rozwiązania, PWE Warszawa 2002

Iwanicz-Drozdowska M., Nowak A., Ryzyko bankowe, SGH Warszawa 2002

Kahn C., Santos J., Allocating bank regulatory powers: lender of last resort, deposit insurance and supervision, BIS Working Papers, Aug. 2001, No. 102

Kaminsky G., Currency and Banking Crises: The Early Warning of Distress, IMF Institute, Dec. 1999

Kaminsky G., The Twin Crisis: The Causes of Banking and Balance of Payments Problems, International Finance Discussion Papers, March 1996, No. 544

Kennedy S., The Banking Crisis of 1933, Lexington 1973

Kindleberger Ch. P., Szaleństwo, panika, krach. Historia kryzysów finansowych, Warszawa 1999

Krugman P., Currency Crises, The University of Chicago Press, Chicago and London 2000

Lottman H. R., Powrót Rotschildów, Dzieje wielkiej dynastii bankierskiej w ciągu dwóch burzliwych stuleci, Warszawa 1998

Małecki W., Sławiński A., Piasecki R., Żuławska U., Kryzysy walutowe, Warszawa 2001

Morawski W., Kronika kryzysów gospodarczych, TRIO, Warszawa 2003

Morawski W., Zarys powszechnej historii pieniądza, bankowości i kredytu, TRIO, Warszawa 2002

Morawski W., Bankowość prywatna w II Rzeczypospolitej, SGH Warszawa 1996

Morawski M., Historyczne źródła współczesnych systemów bankowych, Zeszyty Naukowe WSIiZ, Rzeszów 1998, nr 1

Ogger G., Fuggerowie, Warszawa 1998

Oręziak L., System bankowy Stanów Zjednoczonych – dotychczasowy rozwój i kierunki zmian „Bank i Kredyt” 2000, nr 4 (bankowe ABC)

Oręziak L., Japoński system bankowy, [w:] Bankowość na świecie i w Polsce. Stan obecny i tendencje rozwojowe, red. L. Oręziak, B. Pietrzak, Warszawa 2000

Sławiński A., Przyczyny i następstwa kryzysu walutowego, PWN Warszawa 2001.

Solarz J. K., Ewolucja japońskiego systemu bankowego i polityki monetarnej, Warszawa 1990

Solarz J. K., Rozwój systemów bankowych, Warszawa 1996

Szczepańska O., Podstawowe przesłanki, założenia i struktura sieci bezpieczeństwa finansowego w świetle teorii i doświadczeń międzynarodowych, “Bezpieczny Bank” 2005, nr 1,

Szczepańska O., Sotomska-Krzysztofik P., Pawliszyn M., Pawlikowski A., Instytucjonalne uwarunkowania stabilności finansowej na przykładzie wybranych krajów, „Materiały i Studia” NBP, 2004, z. 173,

Szczepańska O., Sotomska-Krzysztofik P., Pawliszyn M., Banki centralne wobec kryzysów w systemie bankowym, „Materiały i Studia” NBP, 2004, z. 179, s. 6 i nast.

Wood J. W., Bagehot’s Lender of Last Resort. A Hollow Hallowed Tradition, “The Independent Review”, 2003, Vol. VII, No. 3.

Żywiecka H., Przyczyny i mechanizmy kryzysów walutowych ze szczególnym uwzględnieniem znaczenia międzynarodowych przepływów kapitału, „Materiały i Studia” NBP 2002, z. 145.

Knowledge:

After completing the course, the student: knows the theories and models explaining the reasons and mechanism of financial, banking and currency crises; understands the specifics of the financial and banking crises and their importance to the process of changes in the banking systems and to their legislative-institutional environment in the historical perspective; is able to explain the mechanism of crises transfer among the different sectors of the economy at the domestic and international scale in the historical depiction; is able to explain the specifics of the risk of the banking activity in the consecutive historical periods; knows the processes and reasons affecting the bank crashes in different historical periods.

Competences:

After completing the course, the student is able to: perform an analysis of the financial, banking and currency crises from the past, using the up to date (present day) categories and economic instruments; explain an influence of a historical context on the distinctness in the course of the financial crises; associate (put together) the role in which both behavioral and economic factors may trigger the banking crises; explain the mechanism of infecting and transferring the crises among the sectors of economy and the financial institutions; critically evaluate the methods of the crisis management and the costs of the security network: construction: costs of system stability vs. moral hazard.

Social competences:

A student should perceive that the shape of the banking systems security network results as a product of historical experience in the financial crises. A student should be able to interpret and formulate his own conclusions, based on critical analysis of sources, views of different

authors, premises and arguemnts.

SU05, SU06, SK01, SK03, SU04, SU03, SU02, SU01, SW03, SW02, SW01, SW04, SW05, SK02, SK04

1. Written paper: size 18000 – 27000 marks, workshop requirement equal to scientific paper; oral presentation, the paper may be prepared individually or in a small group

2. Activity in discussions on topics mentioned in the presented papers

3. Presense in class, 2 absences are allowed