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date: 18 March 2019

Abstract and Keywords

This article begins by sketching the historical background of banking crises, noting the ‘boom in busts’ of the post-Bretton Woods period following a thirty-year lull. Not all crises are the same and the distinct role of mismanagement, government interference, and macroeconomic shocks is highlighted. The next section reviews the aspects of crises which have received attention from economic theoreticians seeking to understand their recurrence and severity. This is followed by a discussion of the costs of crises, and the importance of prevention and corrective policy. It is argued that despite an inevitable overhaul of regulation in the coming years, crises will recur periodically. The goal should be to minimize their frequency and cost without sacrificing the benefit to economic growth and income equality that a well-functioning financial system can deliver.

Keywords: financial crisis, banking industry, banking regulation, mismanagement, government interference, macroeconomic shocks

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