Overview

Do democratic governments and authoritarian regimes respond to banking crises in the same way? Banking crises threaten the stability and growth of economies around the world. In response, politicians restore banks to solvency by redistributing losses from bank shareholders and depositors to taxpayers. Whereas some governments stay close to the prescriptions espoused by Sir Walter Bagehot in the 19th century that limit the costs shouldered by taxpayers, others engage in generous bank bailouts at great cost to society. In this comparative analysis of late 20th-century banking crises, Guillermo Rosas identifies political regime type as the determining factor. Compared with authoritarian regimes, democratic regimes show a lower propensity toward dramatic, costly bailouts.

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9780472117130

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Reviews

Rosas's compelling theory and wide-ranging empirical evidence yield a persuasive but surprising conclusion in light of the financial meltdown of 2008-9. In the event of banking crises, not only do elected governments treat taxpayers better and force bankers and their creditors to pay more for their mistakes, but bankers in democracies are more prudent as a consequence... essential reading for all interested in the political economy of crisis and in the future of banking regulation. - Philip Keefer, Lead Economist, Development Research Group, The World Bank Rosas convincingly demonstrates how democratic accountability affects the incidence and resolution of banking crises. Combining formal models, case studies, and cutting-edge quantitative methods, Rosas's book represents a model for political economy research. - William Bernhard, Department of Political Science, University of Illinois

Author Information

Guillermo Rosas is Assistant Professor in the Department of Political Science and Fellow at the Center in Political Economy at Washington University in St. Louis.

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