Seminar on Financial Institutions

can we predict how crypto will fit into the regulatory structure?

The next seminar for paid subscribers will be on the topic of financial institutions. The seminar will meet four times, once every two weeks.

The goal will be to end up with some hypotheses about how cryptocurrencies and decentralized finance will end up interacting with financial regulation. But we won’t go at this issue head-on. Instead, we will back into it by going over the history of financial regulation and financial institutions and hope that this history offers insights that can help us anticipate the future.

We will cover the role of financial institutions in the private sector, their role in the public sector, the pre-1990s history of financial regulation and bank crises in the U.S., and the causes of the 2008 financial crisis.

Recommended (not required) readings for the seminar:

Calomiris and Haber, Fragile by Design. If reading the book is too much for you, there is a podcast, including a transcript, with the authors and Russ Roberts. Also, you can read my brief review.

Niall Ferguson, The Cash Nexus.

Perry Mehrling, Fischer Black and the Revolutionary Idea of Finance.

Kling, macro lectures (scroll down to 7-9)

Kling, What do Banks do?

Kling, The Two Drunks Model of Financial Crises

Kling, The Chess Game of Financial Regulation

Kling, The Financial Crisis: Moral Failure or Cognitive Failure?

Kling, Not What They Had in Mind

Yes, some of these essays have me repeating myself. And probably sometimes contradicting myself. But what I repeat is probably worth emphasizing.

Schedule for the seminar:

The seminar will meet every two weeks on Zoom for about an hour and 15 minutes. We have a group that can meet on Monday evenings at 8 PM New York time. If you really want to participate but find that time impossible, leave a comment and I’ll see about setting up another group. Session 1 will be on February 14.

Session 1 will deal with these questions: How does economic theory “assume away” financial institutions? Why does the private sector need banks? Why does the public sector need banks? Why do banks need the public sector?

Session 2 will deal with these questions: What was peculiar about the U.S. financial system prior to the creation of the Fed? Why was the Fed set up as it was? How did the Great Depression affect financial regulation? What was the financial deregulation of the 1970s and 1980s all about? What lessons came out of the S&L crisis of the 1980s?

Session 3 will deal with these questions: What caused the crisis of 2008? Is the post-2008 regulatory regime more robust?

Session 4 will dealt with these questions: If there were no political constraints, how would you regulate financial institutions in the public interest? What are the unavoidable political constraints?