And then, I’ll talk at the end a little bit about comparison of financial crises in the past in various places around the world, to see how banks managed in those crises. I talk about shadow banking, which is the new banking sector that emerged and escaped regulation until the crisis. Changes that will be with us for decades to come. Then, bank regulation, particularly in light of the world financial crisis, which has changed the nature of regulation. Then, I’ll talk about the theory of banks, fractional reserves and deposit insurance. And I wanted to–the outline my lecture: I’m going to start with the origins of banks, thousands of years ago. So, I think he’s a committed person that has a moral purpose, that’s why I asked him to be one of our lecturers.īut today we’re talking about banks. Now, he’s very much involved with philanthropy and doing things like lecturing young people, which he freely does out of a sense of commitment. He remains a very important–he’s no longer at AIG–remains a very important force in our society. And random shocks affect all of our lives. Once again, no one can control everything that happens. He said he’s going to talk about the end, what he learned from the experience. It didn’t end well, but I think he–I talked to him the other day. And Greenberg produced a very innovative insurance giant. Over many years, the two of them ran AIG exclusively, first Starr and then Greenberg. Starr, was converted into the biggest insurance company in the world by Hank Greenberg. And we talked about him in a previous lecture, but he is one of the most important capitalists, I think, in the world. Before I start, I wanted just to remind you that we have Hank Greenberg coming on Wednesday. So, today we’re going to talk about banks, banking. At the end, Professor Shiller provides an overview of financial crises since the beginning of the 1990s, with the Mexican crisis of 1994-1995, and the Asian crisis of 1997.įinancial Markets (2011) ECON 252 (2011) - Lecture 13 - Banks The necessity to regulate banks in the presence of deposit insurance results in a discussion of the role of the Basel commission and an explicit calculation to illustrate the core principles of Basel III. He discusses the Federal Deposit Insurance Corporation as well as the Federal Savings and Loans Insurance Corporation, together with the role that the latter played during the savings and loan crisis of the 1980s.
This leads Professor Shiller to deposit insurance as a means to prevent bank runs. Additionally, he covers Douglas Diamond’s and Philip Dybvig’s model, which does not only analyze the banks’ role for liquidity provision, but also reveals the possibility of bank runs. Banks have survived so long because they solve adverse selection and moral hazard problems. Subsequently, he looks at banking in Italy during the Renaissance and at the goldsmith bankers in 16 th and 17 th century England.
Professor Shiller traces the origins of interest rates from Sumeria in 2000 BC, to ancient Greece and Rome, up to the Song Dynasty in China between the 10 th and the 12 th century.
Their survival in so many different historical periods is testimony to their importance. Banks are among our most enduring of financial institutions.