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Is the Banking and Payments System Fragile?

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Book cover Coping with Financial Fragility and Systemic Risk

Part of the book series: Financial and Monetary Policy Studies ((FMPS,volume 30))

Abstract

In his introduction to The Risk of Economic Crisis, a compilation of papers presented at a conference sponsored by the National Bureau of Economic Research (NBER), Martin Feldstein (1991, p. 1) recognizes that, despite the inability of less developed countries to service their debts, the massive collapse of savings and loan associations in the United States, wide swings in currency exchange rates, the increase in corporate and personal debt, and the stock market crash of 1987, we have not suffered an economic crisis in recent years. Nevertheless, he asserts:

But the risk of such an economic collapse remains. As Charles Kindleberger’s distinguished and fascinating book (Manias, Panics and Crashes: A History of Financial Crises [Basic Books,19781) has ably demonstrated, economic crises have been with us as long as the market economy. At some point, greed overcomes fear and individual investors take greater risks in the pursuit of greater returns. A shock occurs and the market prices of assets begin to collapse. Bankruptcies of leveraged individuals and institutions follow. Banks and other financial institutions fail in these circumstances because they are inherently leveraged. The resulting failure of the payments mechanism and the inability to create credit bring on an economic collapse (Feldstein, 1991, pp. 1–2).

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Author information

Authors and Affiliations

  1. Emory University, Atlanta, GA, 30322, USA

    George J. Benston (John H. Harland Professor of Finance, Accounting and Economics, member of the Shadow Financial Regulatory Committee)

  2. Loyola University of Chicago, Chicago, IL, 60611, USA

    George G. Kaufman (John F. Smith Professor of Banking and Finance, Consultant, Federal Reserve Bank of Chicago, and member of the Shadow Financial Regulatory Committee)

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  1. George J. Benston
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  2. George G. Kaufman
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Editors and Affiliations

  1. University of Limburg, Maastricht, The Netherlands

    Harald A. Benink (Assistant Professor of Finance, Adviser of the Banking and Financial Services Group of Moret Ernst & Young) (Assistant Professor of Finance, Adviser of the Banking and Financial Services Group of Moret Ernst & Young)

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Benston, G.J., Kaufman, G.G. (1995). Is the Banking and Payments System Fragile?. In: Benink, H.A. (eds) Coping with Financial Fragility and Systemic Risk. Financial and Monetary Policy Studies, vol 30. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-2373-1_3

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  • DOI: https://doi.org/10.1007/978-1-4757-2373-1_3

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4419-5155-7

  • Online ISBN: 978-1-4757-2373-1

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