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Economic and Political Aspects of the Credit Crunch: Why Did National Experiences Vary So Much?

This programme of research was sparked by the observation that not all banking systems were adversely affected by the ‘global’ financial crisis. Using changes in the 50 largest banks (by market capitalisation) between 1999 and 2009 as a starting point, we noted that Australia, Brazil, Canada and China had significantly increased their presence, whilst somewhat less surprisingly Japan, Switzerland, the UK and the US had lost ground.

Initially, we looked at all eight countries, but then narrowed the focus to the four Anglo-Saxon countries for better comparability and a shorter project timescale.

We examined the recent evolution of each banking system and economy to identify any factors that might influence relative resilience. These included political and cultural influences, as well as dominant theories of financial crises from a range of academic disciplines and the policy approaches they favoured. We conclude that the current crisis is not a purely economic, political or governance phenomenon, and that there is no universal answer to the question ‘why were some banking systems stronger than others?’

Nevertheless, some factors do seem to have played a role in many of the cases. For example, radical liberalisation (‘Big Bang’) appears to make systems vulnerable. Politically powerful banking sectors tend to be a feature of these systems, successfully lobbying for weaker regulation, while less influential financial sectors were unable to achieve the same degree of freedom. A previous crisis in some cases – but not all, showing the importance of context – caused legislators to favour prudential regulations, which served to protect them from the worst of the present crisis.

We argue that these factors, as well as others centred in the economic and corporate governance areas, should be the subject of continuing inter-disciplinary research.

London Centre for Corporate Governance and Ethics

London Centre for Corporate Governance and Ethics

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