## wp1808

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### Scope and approach
- Section 3 examines episodes of financial boom-bust individually and documents the patterns in financial regulation, their political economy.
- Section 4 summarizes and discusses the main findings, bringing in additional evidence; presents some limited empirical evidence illustrating the cycle and regulatory backlash from financial crises.
- Providing a theoretical explanation is beyond the scope of the paper and left for future research; Section 4 lays out potential mechanisms that can lead to regulatory cycles.

### Relation to existing literature
- Connects to two major strands:
  - Literature on financial crises (including political economy considerations).
  - Literature on the political economy of financial regulation.
- Key conceptual anchors and cited themes:
  - Minsky’s financial instability hypothesis (Minsky, 1992).
  - Kindleberger (1978): crises as culmination of expectations financed by excessive credit creation.
  - Reinhart and Rogoff (2009): cross-crisis empirical similarities.
  - Financial liberalization (FL) literature: removal of constraints on capital flows, risk of crises, and long-run growth (multiple citations).
- Distinct emphasis from FL literature:
  - Focuses on financial boom-busts rather than liberalization per se; only three out of ten episodes covered are characterized as liberalization episodes.
  - Examines broader financial policies (regulatory stance, supervision, credit market interventions) and sequencing (preceding the boom, during the boom, following the bust).
  - Emphasizes cyclicality of regulation.

### Political economy of financial regulation (Section 2.2)
- Regulation framed as bargaining among self-interested agents (Stigler, 1971).
- Private-benefit views of regulation passage supported by numerous empirical studies; public-benefit view not dismissed but harder to establish.
- Cyclicality discussed in policy literature (examples: Reagan, 2009; Blinder, 2015; Aizenman, 2009; Almasi, Dagher and Prato, 2017).

### Case studies — South Sea Bubble (Section 3.1)
- Episode summary and dynamics:
  - South Sea Company founded in 1711; trading activity limited; heavily involved in handling government debt and increasing debt liquidity.
  - Share price example: from £120 in January 1720 to around £550 in early June 1720.
  - Political elite widely invested; SSC paid bribes to politicians up to members of the House of Commons.
- Regulatory forbearance and backlash:
  - Bubble Act passed in June 1720 requiring parliamentary approval for joint-stock companies; driven by SSC special interest influence.
  - Enforcement prosecutions backfired, accelerating market decline in August 1720; Sword Blade bank failed in September 1720.
  - Commons investigation led to expulsions and confiscations; Sir John Barnard’s Act restricted shortsales and trade in futures and options.
- Longer-run effects:
  - Bubble Act enforced for a century until 1825, argued to limit capital availability and slow industrial development prior to 1830.
  - Public finance reorganized (e.g., Robert Walpole reorganized national debt allocation).

### Case studies — The Financial Crisis of 1825 (Section 3.2)
- Background and causes:
  - Post-Napoleonic context: active loan market in London; boom in 1822-1825 with many South American mining and state bond issues.
  - Promoters and MPs used political positions to promote schemes (example: Gregor McGregor floated a £600,000 loan to the fictitious Poyais).
- Legal and regulatory environment:
  - Bubble Act remained in force; repeal occurred in June 1825.
  - Market nervousness dated between mid-June and late July; full panic in fourth quarter of 1825; banking cracks emerged in September 1825.
- Crisis severity:
  - Runs on country banks and bank failures; "By end of 1826 close to 10 percent of all English banks had failed."
  - Described as "perhaps the first major global banking crisis."
- Immediate policy response:
  - Banking co-partnership Act of 1826:
    - Permitted formation of joint-stock banks beyond a 65 miles radius from London if more than six partners and freely-transferable shares.
    - Encouraged Bank of England to open branches outside London.
  - Geographical restriction removed in 1833.
- Longer-term consequences:
  - Subsequent panics in 1836-37, 1847, 1857 prompted fine-tuning of banking laws.
  - Cumulative policy changes laid basis for Britain's financial dominance until World War I.
  - Neal (1992) links crisis to political reforms culminating in the Great Reform Act, increasing number of voters by around 15%.

### Case studies — The Japanese Financial Crisis of the 1990s (Section 3.4)
- Boom and crash:
  - Nikkei stock index surged by more than 200 percent between 1985 and 1990.
  - Land prices rose by around 220 percent between 1985 and 1990.
  - Boom ended in 1990; land and real estate prices collapsed in 1992.
- Deregulation and weakened supervision:
  - 1980s deregulation broadened markets and introduced instruments (CDs, Commercial paper) without comprehensive structural reform.
  - 1981 Banking Reform Act: Banking Bureau failed to impose stricter disclosure.
  - MoF regulatory division dissolved in 1984; supervisors could audit banks only once every two to three years.
  - Interest rates brought down from 5 to 2.5 percent between 1985 and 1987; tightening came too late toward 1989.
- Political interference and the Jusen episode:
  - Jusen companies expanded lending beyond mandate; between 1980 and 1990 their lending almost quadrupled; share on corporate borrowers grew from a mere 5 percent to nearly 80 percent.
  - Jusen funded by loans from over 300 financial institutions.
- Forbearance and crisis resolution:
  - Evergreening of nonperforming loans; seven Jusen failures in 1995; government rushed to prepare 685 billion.
  - Systemic banking crisis of 1997-1998.
  - February of 1998: JPY 30 trillion made available to the Deposit Insurance Corporation of Japan (DICJ); JPY 1.8 trillion injected in 21 major banks, among which two large banks were nationalized.
- Political fallout and regulatory reform:
  - Political reforms including 1994 electoral reform; creation of independent supervisors and the Financial Services Agency (FSA).
  - Bank of Japan gained independence; schedule for removal of blanket guarantees introduced.
  - Prudential and supervisory improvements extended well into the 2000s.

### Case studies — The Swedish Banking Crisis (Section 3.5)
- Overview and distinguishing features:
  - Aggregate loan losses among the seven major banks was around 12% of Sweden’s GDP.
  - Noted for speedy and efficient crisis resolution.
  - Credit explosion seen as side effect of liberalization rather than explicit government sponsorship.
- Deregulation chronology (selected items and years preserved exactly as in source):
  - 1972: commercial rents deregulated.
  - 1978: ceilings on bank deposit interest rates removed.
  - January 1980: new legislation allowed banks to issue Certificates of Deposit (CDs); tax on CD issuance removed.
  - 1980: ceilings on private sector bond interest removed and certain restrictions on foreign ownership of Swedish shares lifted.
  - 1982: removal of quantitative ceiling on private bond issues.
  - 1983: abolition of liquidity ratios requirements for banks.
  - 1985: removal of interest rate ceilings, lending ceilings for banks, and placement requirements for insurance companies.
- Credit expansion and asset price booms:
  - Stock market index increased by 118% between 1985 and 1988.
  - Household financial assets grew from 82% to 102% of GDP over the same period.
  - Office building prices in Stockholm quadrupled between 1980 and 1990; residential prices doubled over the same period (compared with a European average increase of 30 percent).
  - Household debt to income increased from 100% to 130% between 1985 and 1991.
- Bust triggers and magnitude:
  - After peaking in August of 1989:
    - Construction and real estate stock price index fell by 52 percent over the following year.
    - The stock market general index dropped by 37 percent over the following year.
    - House prices fell by 30% from their peak within the next three years.
  - Credit losses totaled the equivalent of 12% of annual GDP.
- Crisis resolution and reforms:
  - Increased deposit insurance and guarantee of bank debt; acquisition of equity in banks; purchase of impaired assets.
  - December 1992: Bank Support Authority set up with open-ended funding.
  - Riksbank gained complete independence in 1999; inflation target of 2%.
  - Bank guarantee disbanded in 1996 and replaced by a deposit guarantee financed entirely by banks.

### Case studies — U.S. Dot-Com Episode (Section 3.7)
- Market dynamics and key statistics:
  - Between September of 1998 and March of 2000, the NASDAQ composite index rose by 170 percent.
  - Within a year from their peak, NASDAQ composite and SP 500 indexes fell by around 60 percent and 20 percent, respectively.
  - Within two years of the bust, NASDAQ and SP 500 reached troughs around 75 percent and 40 percent below peak.
  - Dow Jones Internet stock index plummeted by 93 percent from peak to trough.
  - The economy lost around $5 trillion in total wealth from peak to trough.
  - IT investment averaged around 24 percent between 1995 and 2000.
  - Between 1998 to early 2000, the Internet sector earned over 1000 percent returns on public equity.
- Regulatory environment during the boom:
  - PSLR act of 1995 and SLUS act of 1998 increased hurdles against private securities litigation.
  - AICPA and largest six accounting corporations spent around $17 million on campaign contributions in the decade leading up to PSLR.
  - SEC budget stalled during 1993-2000 despite rapid securities activity growth.
  - Glass-Steagall Act repealed in 1999.
- Post-crash reforms:
  - Sarbanes-Oxley Act (SOX) passed in July 2002; created PCAOB and tightened disclosure and auditing oversight.
  - SEC investigations increased dramatically; enforcement implicated auditing firms (PricewaterhouseCoopers, Arthur Andersen).

### Case studies — U.S. Great Recession (Section 3.9)
- Political economy and housing boom:
  - Affordable housing mandate for Fannie Mae and Freddie Mac increased from 30 percent in 1992 to 55% in 2007.
  - “Special affordable” housing mandate: increased from 12 to 20 percent in 2001, with an objective target of 28 percent in 2008.
  - From 1993 to 2007 there were over 700 roll calls in the House related to affordable housing, home-ownership, or subprime.
  - American Dream Downpayment Act (2003): provided $200 million annually for downpayment assistance to low-income homebuyers.
- Deregulation and weakened oversight:
  - Office of Thrift Supervision preempted state mortgage regulations in 1996; OCC followed in 2004.
  - Notional value of the derivatives market at the time amounted to around $80 trillion.
  - CFMA (2000) removed OTC derivatives from many CEA requirements.
  - CSE program allowed investment banks to increase leverage (reported implication from 1:12 to 1:33); CSE discontinued in 2008.
- Crisis response and Dodd-Frank Act (DFA):
  - DFA enacted 2010; created CFPB; overhauled oversight, resolution mechanisms, capital requirements, and credit rating agency regulation.
  - Implementation status as of end of 2015:
    - 267 of the 390 total required rules have been met.
    - 40 have been proposed but not implemented.
    - 83 have not yet been proposed.
- Political aftermath:
  - Incumbent Republican Party lost seats; rise of Tea Party and Occupy Wall Street.
  - Public support for regulation rose in 2012 but declined as the economy recovered; subsequent deregulatory intent signaled by the Trump administration.

### Case studies — Spain’s Housing Boom and Bust (Section 3.10)
- Scope and magnitude:
  - Real house prices doubled during the 2000-2007 period.
  - Pace of construction doubled between 1998 and 2008.
  - Share of construction in GDP increased by 4 percentage points, reaching 10.7 percent in 2008.
  - Homeownership rate pre-boom was around 80 percent.
- Political sponsorship and drivers:
  - Joining the Eurozone produced low interest rates; demographic and immigration factors contributed.
  - Regional control over zoning after 1997 constitutional court decision concentrated supply and demand power at regional level.
  - Corruption around urban planning increased markedly.
- Role of the cajas:
  - 1985 law transferred control of the cajas to regional governments; 1988 law allowed cajas to branch into other regions.
  - Illueca, Norden, and Udell (2008): cajas more likely to open new branches and extend new loans in politically aligned provinces.
  - Lending for construction and development grew from 8 percent to nearly 30 percent of GDP between 1995 and 2005.
  - Mortgage lending rose from 17 to nearly 50 percent of GDP over the same period.
  - Appraisal manipulation evidence: around 30 percent upward bias induced by cajas (Akin et al, 2014).
- Crisis response and reforms:
  - Post-Lehman: debt guarantee program, capital injections in first quarter of 2009, creation of FROB for orderly bank restructuring.
  - Reforms: prohibition of elected officials from governing caja bodies; transfer of banking business to newly formed commercial banks under Bank of Spain supervision; increases in bank capital requirements and on-site continuous monitoring extended to all significant Spanish banks.
- Political consequences:
  - PP lost the 2004 general election; PSOE severely affected by the crisis.
  - Rise of Podemos (founded 2014) and decline in combined PP-PSOE vote share from average of 80 percent to around 55 percent in 2016.

### Human resources and regulatory staffing during booms and crises
- Data limitations highlighted:
  - South Korea: central bank staffing cost data available from 1995; Financial Supervisory Service (FSS) created in 1998 making pre- and post-1998 levels not comparable.
  - Spain: only budgetary cost of total human resources at BdE available; pronounced drop between 2004 and 2005 requires caution.
  - Ireland: staffing cost rose continuously; uptick in 2004 following creation of IFSRA in 2003.
- Caution: staffing may be a poor indicator of regulatory intensity under a government adoption of "light-touch" approach.

### Stylized political-economy patterns across booms
- Recurring patterns:
  - Ruling governments during booms often proponents of laissez-faire policies while embracing credit subsidies that deviate from laissez-faire.
  - Governance deterioration: symbiotic relationships between politicians and financiers and increased corruption.
  - Political fallout: ruling parties often lost power convincingly after crashes; post-crash governments typically embraced financial regulation and sometimes hostility toward financial sector.
- Empirical suggestive evidence:
  - Fiscal costs of crises appear to be significant predictors of extent of regulatory backlash (Bank Regulation and Supervision Survey; survey waves: 2001, 2003, 2007, 2011).
  - Comparable measures of voter sentiment across countries lacking, limiting definitive empirical conclusions on motivations behind re-regulatory waves.

### Empirical results (selected regression findings from Bank Regulation and Supervision Survey)
- Dependent variable: Regulation on bank capital (observations: 230; newid: 106).
  - Post-crisis coefficients (columns highlighted):
    - (1) 1.246 [0.703]
    - (2) 1.721** [0.498]
    - (3) 1.260 [0.708]
    - (4) 1.955*** [0.490]
  - Post-crisis*Crisis dummy:
    - (3) -2.103* [1.036]
    - (4) -2.921* [1.355]
  - Post-crisis*Fiscal costs (%ofGDP):
    - (3) 0.0287*** [0.00633]
    - (4) 0.0982*** [0.0172]
- Dependent variable: Regulation on official supervision power (observations: 312; newid: 102).
  - Post-crisis coefficients:
    - (1) 0.659 [1.217]
    - (2) 0.756 [1.282]
    - (3) 1.122 [0.967]
    - (4) 1.498 [0.887]
  - Post-crisis*GDP per capita 2006:
    - (1) 0.0750** [0.0257]
    - (2) 0.0817** [0.0276]
    - (4) 0.0591* [0.0297]
  - Post-crisis*Fiscal costs (%ofGDP):
    - (3) 0.227*** [0.0228]
    - (4) 0.264*** [0.0177]
- Notes: Financial and trade interconnectedness indexes from IMF sources; crisis dummy from Laeven and Valencia (2012). Robust standard errors reported in brackets.

### Potential theories behind observed patterns (Section 4.3)
- Framing:
  - Regulation laxer during booms and stricter during busts; pro-cyclicality may be ex post inefficient. The paper presents illustrative mechanisms without resolving optimality.
- Sentiment hypothesis:
  - Voter and politician optimism during booms reduces perceived probability of bad events, leading to reduced regulation; pessimism during busts raises regulation.
  - Bayesian updating and collective memory loss can explain low frequency of cycles.
  - U.S. General Social Survey evidence: confidence in banks peaked during booms and plummeted during banking crises.
- News effect / information acquisition timing:
  - Voters become more informed after crises; interest wanes over time, allowing regulation to erode and capture to increase.
  - Political incentives to deregulate toward beginning of tenure when effects are noisy and lagged.
- Political credit cycles and asymmetric information about politicians:
  - Harder to distinguish good and bad politicians during booms; bad politicians more likely to deregulate leading to excessive booms.
  - Almasi, Dagher, Prato (2017) model produces amplification: competent politician may deregulate more during optimism and over-regulate during busts to signal competence; cycles muted in countries with less corruption and more accountability.
- Role of lobbyists and political choices:
  - Close politician-banker relationships during booms; post-crisis institutions tend to weaken such links.
  - Symbiosis may reflect political decisions and signaling incentives, not just lobby power.
- Open institutional questions for future research:
  - How to insulate regulators from political and voter philosophy changes.
  - What institutional changes preserve macro-prudential policy across political cycles.

### Representative empirical and bibliographic emphases
- Cross-country and historical case comparisons spanning England (South Sea, 1825), Japan (1990s), Sweden (late 1980s–1990s), Korea (1997-98), Ireland, Spain (2000s), United States (Dot-Com, Great Recession).
- Recurrent policy concerns: deregulation timing, supervisory capacity, political capture, fiscal costs of crises, and the design of resilient regulatory institutions.

*Source: wp1808 (PDF chapter/section)*

### Section 3 examines episodes of financial boom-bust individually and documents the pat-

### wp1808 - Section 3 examines episodes of financial boom-bust individually and documents the pat-

### Scope and approach
- Section 3 examines episodes of financial boom-bust individually and documents the patterns in financial regulation, their political economy.
- Section 4 summarizes and discusses the main findings, bringing in additional evidence; presents some limited empirical evidence illustrating the cycle and regulatory backlash from financial crises.
- Providing a theoretical explanation is beyond the scope of the paper and left for future research; Section 4 lays out potential mechanisms that can lead to regulatory cycles.

### Relation to existing literature (Section 2)
- Paper connects to two major strands:
  - Literature on financial crises (including political economy considerations).
  - Literature on the political economy of financial regulation.

- Key references and themes noted in the text:
  - Minsky’s financial instability hypothesis (Minsky, 1992): success breeds success; inflation and debt-deflation are self-perpetuating; tension between financial and real sectors.
  - Kindleberger (1978): crises as culmination of expectations financed by excessive credit creation; speculative manias.
  - Reinhart and Rogoff (2009): cross-crisis empirical analysis emphasizing similarities across history.
  - Political-economy-focused crisis studies (examples listed): Chancellor, 2000; Haggard, 2000; Horowitz and Heo, 2001; Allen, 2004; Wolfson and Epstein, 2013; O Keeffe and Terzi, 2015.
  - Financial liberalization (FL) literature: focuses on removal of constraints on capital flows, risk of crises, and long-run growth (Bekaert et al, 2005; Tornell and Westermann, 2005; Kose et al., 2006; Kaminsky and Shmuckler, 2008; Kaminsky and Reinhart, 1999; Demirguc-Kunt and Detragiache, 1998; Glick and Hutchinson, 2005; Henry, 2000).

- Distinctions from FL literature emphasized:
  - This paper focuses on financial boom-busts rather than on liberalization per se.
  - Only three out of the ten episodes covered are characterized as liberalization episodes.
  - Examines financial policies in broader terms (regulatory stance, supervision, credit market interventions), and sequencing (preceding the boom, during the boom, following the bust).
  - Key pattern discussed: cyclicality of regulation versus FL literature focus on discrete events.
  - Paper offers two examples where modernization was followed by credit subsidization and sponsorship of the boom, confounding FL–crisis relations.

### Political economy of financial regulation (Section 2.2)
- Regulation as outcome of bargaining among self-interested agents (economic theory of regulation; Stigler, 1971).
- Calomiris and Haber (2014): “rule of the game” as bargaining outcome between politicians and bankers; wartime examples where governments obtained funding and bankers obtained concessions.
- Empirical studies often support private-benefit views of regulation passage (Posner, 1997; Kroszner and Strahan, 1999; Benmelech and Moskowitz, 2010; Mian et al, 2010 and 2013; Rajan and Ramcharan, 2011).
  - Public-benefit view cannot be dismissed outright (Mian et al, 2010 and 2013), but is empirically harder to establish.
- Cyclicality of regulation discussed in policy literature:
  - Reagan (2009): warns against over-regulation in response to crises leading to subsequent deregulation.
  - Blinder (2015): argues over-regulation can be optimal based on regulation decay and regulatory hurdles.
  - Aizenman (2009): Bayesian updating on crisis probability can generate cyclicality.
  - Almasi, Dagher and Prato (2017): examine cyclicality in a political economy model with a financial sector.

### Revisiting financial crises (Section 3 overview)
- Survey of infamous financial crises based on Kindleberger and Aliber (2011)’s top 10 list, but coverage diverges:
  - KL lumps multiple 2002–2007 “bubbles” (England, Iceland, Ireland, Spain, United States); this paper studies Ireland, Spain, and the U.S. separately to explore political-environment differences.
  - The paper drops Tulip Mania (Dutch 1630s) and Mississippi Bubble (1720s France) from KL’s list for reasons of economic significance and overlap.
  - Adds the financial crisis of the 1820s in England (1825) to include a 19th-century example and allow cross-time comparison within a country (comparing two major crises in a country: Great Depression and Great Recession).

### The South Sea Bubble (Section 3.1)
- Episode summary:
  - South Sea Company (SSC) founded in 1711 as a public-private partnership to trade with South America; trading activity remained limited and company never realized significant profit from its monopoly.
  - SSC was heavily involved in handling government debt and increased liquidity of government debt.
  - SSC entered a bidding war with the Bank of England to convert remaining national debt; SSC paid bribes to politicians up to members of the House of Commons.
  - Share price climb example: from £120 in January 1720 to around £550 in early June 1720.
  - Rise of many “bubble companies” with speculative and deceptive schemes.
  - Political elite widely invested; incentives aligned between SSC and politicians.
  - Dissident voices in Parliament pushed to investigate bubble companies as early as February 1720, but were outweighed by supporters who received bribes.

- Regulatory forbearance and backlash:
  - SSC pushed for the “Bubble Act,” passed in June 1720, requiring prospecting joint-stock companies to obtain Parliamentary approval and preventing activities not specified by charters.
  - The Bubble Act was driven by special interest (SSC and MPs invested or bribed by SSC) and constituted regulatory forbearance intended to extend SSC’s boom.
  - Subsequent enforcement actions (prosecution of three bubble companies) backfired and led to a market panic.
  - Market decline accelerated in August 1720; in September 1720 the Sword Blade bank (SSC’s banker) failed.
  - Public outrage followed; Commons investigation found widespread fraud and corruption.
  - Four MP directors were expelled from the House; bills confiscated profits of SSC directors and restricted shortsales and trade in futures and options (Sir John Barnard’s Act).

- Long-run regulatory and political consequences:
  - The Bubble Act’s continued enforcement after the crash persisted for a century until the 1825 boom, indicating a restrictive regulatory backlash that constrained joint-stock expansion.
  - Scholars argue the Bubble Act limited availability of capital and slowed industrial development prior to 1830 (Temin and Voth, 2013).
  - Public anger led to prosecutions and confiscations; John Aislabie, Chancellor of the Exchequer, and several MPs expelled in 1721.
  - Robert Walpole, previously opposed to SSC, became Chancellor of the Exchequer and reorganized national debt allocation among the Bank of England, the Treasury and the Sinking Fund.
  - The trauma from the South Sea Bubble is said to have ushered in an era of more efficient public finance (Dickson, 1967).

*Italic: Source: wp1808 - Section 3 examines episodes of financial boom-bust individually and documents the pat- (PDF chapter/section)*

### 3.2  The Financial Crisis of 1825

### 3.2 The Financial Crisis of 1825

### Background and causes
- "There was never a period in the history of this country, when all the great interests of the nation were at the same time in so thriving a condition or when a feeling of content and satisfaction was more widely diffused through all the classes of the British people." — King George IV, February 1825.
- Post-Napoleonic wars context:
  - The Napoleonic wars (1803 to 1815) coincided with the collapse of the Spanish empire in Latin America and the rise of independent states with new financing needs.
  - An active loan market developed in London as European financiers sought new investment outlets.
- Investor optimism and speculation:
  - A boom in 1822-1825 saw a wide array of tenuous schemes enter stock and bond markets, including many South American mining companies quoted on the London Stock Exchange.
  - New state bonds were issued despite imminent regional military conflicts and uncertain debt-servicing capacity.
  - Sophisticated financiers became "gullible investors" financing increasingly bewildering schemes.
- Political influence and promotion:
  - Promoters and MPs often neutralized dissident voices; companies employed members of Parliament and peers as decoy directors to gain political favors.
  - Examples: the prime minister, Lord Liverpool, was appointed president of a company seeking to revive the silk industry; Gregor McGregor floated a £600,000 loan to the fictitious Poyais.
- Role of the Bank of England:
  - The Bank of England facilitated speculation by issuing paper money and credit and by discounting bills drawn by other banks.

### Legal and regulatory environment
- The Bubble Act and enforcement:
  - The Bubble Act remained in force and continued to require parliament approval for prospective joint-stock companies, leaving the Bank of England as the sole approved joint-stock bank.
  - Restrictions on futures and options based on Sir John Barnard's Act of 1734 were also in place.
  - Legislative calls for stricter enforcement increased with the rate of enterprise formation, but enforcement efforts backfired in March 1825 due to reactions by MPs who were invested in many bubble companies.
- Repeal of the Bubble Act:
  - The Bubble Act was repealed in June 1825.
  - Harris (1997) finds the repeal was mostly driven by private interests at the time; opposition came from conservative lawyers, notably Lord Chancellor Eldon.
  - Market developments between bill introduction and passage:
    - A gentle slide in Latin American bond prices occurred between the bill being brought to parliament and its passage in June 1825.
    - Dawson (1990) dates market nervousness to sometime between mid-June and late July.
    - The market became lukewarm about new bond issues by end-August; a full-blown panic ensued in the fourth quarter of 1825.
    - Cracks in the banking sector did not appear until September 1825 (Neal, 1998).

### Crisis dynamics and severity
- Transition from boom to crash:
  - The crash in stock and bond prices led to runs on country banks and bank failures.
  - "By end of 1826 close to 10 percent of all English banks had failed."
- Characterization:
  - The 1825-26 crisis is described as "perhaps the first major global banking crisis" and a watershed in England's financial history.

### Immediate policy response
- Banking co-partnership Act (Country Banker's Act) of 1826:
  - Motivated in part by public blame on the Bank of England for the crisis.
  - Aimed to strip the Bank of England of its monopoly and stabilize the English banking system with the understanding that greater capital is needed to withstand runs.
  - Provisions:
    - Permitted formation of joint-stock banks.
    - Allowed banks with more than six partners and freely-transferable shares to be established beyond a 65 miles radius from London.
    - Encouraged the Bank of England to open branches outside London.
  - The geographical restriction on banks was later removed in 1833 when the Bank of England’s charter was up for renewal.

### Longer-term reforms and consequences
- Subsequent banking panics and policy evolution:
  - England experienced further banking panics in 1836-37, 1847, and 1857, each prompting fine-tuning of banking laws.
  - Following the 1836 panic the Bank of England was required to provide liquidity to other banks in time of crises, creating a moral hazard problem later addressed in the late 1850s through policy changes.
- Cumulative impact on Britain's financial system:
  - Neal (1998): “The policy changes that affected the monetary regime —the exchange rates, the structure of the banking sector, the role of the Bank of England and the management of the governments debt —while minor in each particular and slow to take effect, were cumulatively effective in laying the basis for Britain's dominance in the world financial system until the outbreak of World War I.”
- Political effects:
  - Neal (1992) argued the crisis led to a series of political reforms over time, culminating in the Great Reform Act, which increased Parliamentary representation of large industrial cities at the cost of ‘rotten boroughs’ and increased the number of voters by around 15%.

*Source: wp1808 - 3.2 The Financial Crisis of 1825*

### 3.4  The Japanese Financial Crisis of the 1990s

### 3.4  The Japanese Financial Crisis of the 1990s

### Boom and crash
- Between 1985 and 1990, the Nikkei stock index surged by more than 200 percent and land prices by around 220 percent.
- The boom ended in 1990 with the plunge of the Nikkei stock index, followed by a collapse of land and real estate prices in 1992.

### Deregulation and weakened supervision in the 1980s
- A series of financial deregulation took place toward the 1980s to broaden markets for treasuries and bonds, expand access to foreign capital, and introduce previously restricted instruments (e.g., CDs and Commercial paper).
- Deregulation occurred without comprehensive structural reform; many changes were driven by lobbying from financial-sector actors rather than a coherent reform program.
- The 1981 Banking Reform Act: the Banking Bureau failed in its attempt to impose stricter disclosure rules on banks.
- The reform of the Deposit Insurance Law increased assistance to banks rescuing failed institutions, with little consideration of moral hazard.
- The dismantling of the old regulatory system occurred without parallel strengthening of regulatory oversight, producing a compensating intensification of informal regulation and networks.
- Supervisory capacity declined: the Ministry of Finance’s (MoF) regulatory division was diminished (the MoF division responsible for financial institution regulation was dissolved in 1984), and supervisors could audit banks only once every two to three years.
- Interest rate policy reflected political discretion: between 1985 and 1987 interest rates were brought down from 5 to 2.5 percent; rates began to rise toward 1989 but the tightening came too late.

### Political interference, cronyism, and the Jusen episode
- The rise in the risk profile of bank portfolios during the 1980s coincided with deregulation and an intensification of bank-politician connections; political interferences spurred massive production of soon-to-be nonperforming loans.
- Crony capitalism and corruption increased markedly, aided by networks linking corporations, banks, the Ministry of Finance, and politicians.
- The Jusen companies (originally established in the early 1970s to provide housing loans) expanded lending beyond their mandate to real estate speculators and developers.
  - The Jusen were funded by loans from over 300 financial institutions, implicating the entire financial system.
  - Between 1980 and 1990 their lending almost quadrupled and the share on corporate borrowers grew from a mere 5 percent to nearly 80 percent.
- The MoF’s ability to influence lending by Jusen diminished as politically powerful agricultural cooperatives increasingly invested in the Jusen.

### Forbearance and crisis resolution
- After the bubble burst, the government was unwilling to force recognition of asset losses on banks, allowing them to continue to roll over nonperforming loans in a strategy referred to as evergreening.
- Political scandals and public outrage constrained early large-scale bailouts and limited the government’s ability to stimulate the economy.
- The failure of seven Jusen companies in 1995 demonstrated growing instability; the government rushed to prepare 685 billion to solve the problem but faced political backlash that curtailed its capacity to respond, leaving banks to bear a large share of the losses.
- The systemic banking crisis of 1997-1998 exposed the extent of problems in the banking sector and their implications for the real economy, prompting decisive action.
- Notable public-fund interventions: in February of 1998, JPY 30 trillion of public funds were made available to the Deposit Insurance Corporation of Japan (DICJ). Public funds of JPY 1.8 trillion were injected in 21 major banks, among which two large banks were nationalized. More funds were injected over the following years as the estimate of NPLs continued to increase.

### Political fallout and regulatory reform
- Political consequences: scandals and revelations of cronyism contributed to losses for the ruling Liberal Democratic Party (LDP) in upper- and lower-house elections; in 1993 former LDP member Hosokawa Morihiro led an eight-party coalition to a narrow victory that opened the way to political reforms.
- Political reforms included an overhaul of the electoral system (introduction of single-member election districts) and new regulations on political donations and government funding of political parties.
- Regulatory response and overhaul (slow but substantive over time):
  - Starting in 1991 the committee on financial reform called for an independent financial supervisor.
  - Other agencies increased supervisory activity (e.g., the Fair Trade Commission engaged in securities fraud investigations for the first time since its establishment in 1947).
  - In the mid 1990s the government announced the “Financial Big Bang” reform, a plan aimed at thoroughly liberalizing and reforming the financial system by 2001.
  - The Ministry of Finance gave way to a new Financial Services Agency (FSA); regulation of banks became the task of the FSA, the Deposit Insurance Corporation (DIC), and the Bank of Japan.
  - The Bank of Japan gained independence.
  - Legislation introduced a schedule for removal of blanket guarantees given to depositors.
  - The new framework intensified inspection of major banking groups, reorganized inspection units, required more realistic valuation of bank assets, tightened assessment of bank asset quality, and implemented a stricter definition of regulatory capital.
  - The FSA began inspections of government financial agencies and the postal agencies.
- Improvements to the prudential and supervisory framework extended well into the 2000s as Japan continued recovery efforts.

### Key statistics and facts (preserved exactly as in source)
- Nikkei stock index: surged by more than 200 percent between 1985 and 1990.
- Land prices: rose by around 220 percent between 1985 and 1990.
- Interest rates: brought down from 5 to 2.5 percent between 1985 and 1987.
- Jusen lending: between 1980 and 1990 their lending almost quadrupled; share on corporate borrowers grew from a mere 5 percent to nearly 80 percent.
- Jusen failures in 1995: seven Jusen companies failed; government rushed to prepare 685 billion.
- Systemic banking crisis: 1997-1998.
- Public funds (February of 1998): JPY 30 trillion made available to the Deposit Insurance Corporation of Japan (DICJ); JPY 1.8 trillion injected in 21 major banks, among which two large banks were nationalized.

*Source: wp1808 - 3.4  The Japanese Financial Crisis of the 1990s*

### 3.5  The Swedish Banking Crisis

### 3.5  The Swedish Banking Crisis

### Overview and distinguishing features
- Aggregate loan losses among the seven major banks was around 12% of Sweden’s GDP, much larger than the banking sector’s total equity capital.
- The Nordic banking crisis is noted for its speedy and efficient crisis resolution process.
- The Swedish episode does not fully fit stylized patterns where government actively sponsors risky lending; the explosion in credit and the real estate boom were a side effect of liberalization rather than clear evidence of government-driven risky lending.
- The Swedish case highlights the potential role of strong institutions and low corruption in guarding against pro-cyclical regulatory policy.

### Historical regulatory context and drivers of liberalization
- Post-war decades (1940s–1950s): more intrusive government regulation of financial markets; Riksbank determined both lending and deposit rates via voluntary agreements with commercial banks.
- Policy objective included sustaining high investment in the residential sector (the “million-program” aimed at building 100,000 low rent housing units per year over 10 years, financed by the Riksbank).
- Deregulation process:
  - 1972: commercial rents deregulated.
  - 1978: ceilings on bank deposit interest rates removed.
  - January 1980: new legislation allowed banks to issue Certificates of Deposit (CDs); tax on CD issuance removed.
  - 1980: ceilings on private sector bond interest removed and certain restrictions on foreign ownership of Swedish shares lifted.
  - 1982: removal of quantitative ceiling on private bond issues.
  - 1983: abolition of liquidity ratios requirements for banks.
  - 1985: removal of interest rate ceilings, lending ceilings for banks, and placement requirements for insurance companies.
- Motivation for deregulation included household and firm dissatisfaction with domestic credit market limits, technological and trade developments, and mounting government deficits.

### Credit expansion, asset price boom, and risk-taking
- Rapid expansion in credit primarily benefited residential and commercial real estate sectors.
- Stock market index increased by 118% between 1985 and 1988.
- Household financial assets grew from 82% to 102% of GDP over the same period.
- Office building prices in Stockholm quadrupled between 1980 and 1990; residential prices doubled over the same period (compared with a European average increase of 30 percent).
- Andersson and Jonung (2016) note household debt to income increased from 100% to 130% between 1985 and 1991.
- Scholars attribute part of the extraordinary boom to riskier investments in a deregulated environment and lax risk analysis by financial institutions.

### Macroeconomic fragilities and triggers of the bust
- Krona devaluations in 1981 and 1982 by 10% and 16%, respectively.
- In the late 1980s: high inflation and currency speculation as the Riksbank did not revalue the Krona.
- The Riksbank engaged in contractionary monetary policy to defend the peg, raising interest rates and precipitating asset price declines.
- After peaking in August of 1989:
  - Construction and real estate stock price index fell by 52 percent over the following year.
  - The stock market general index dropped by 37 percent over the following year.
  - House prices fell by 30% from their peak within the next three years.
- Credit losses totaled the equivalent of 12% of annual GDP.
- Finance companies heavily invested in real estate went bankrupt, transmitting losses to banks.

### Crisis resolution measures and institutional responses
- Swedish resolution model combined:
  - Increased deposit insurance and guarantee of bank debt.
  - Acquisition of equity in banks.
  - Purchase of impaired assets identifiable in bank balance sheets.
- Outcomes of this approach: prevented panic-induced bank runs, lowered possibility of a credit crunch, and maintained transparency in the resolution process.
- December 1992: Swedish Parliament set up a Bank Support Authority independent of the government, the Riksbank and the Financial Supervisory Authority and provided it with open-ended funding.
- Political unity between government and opposition facilitated decisive action despite a government turnover in 1991.

### Post-crisis reforms, monetary policy, and market liberalization
- Fiscal policy became subject to new requirements to enhance sustainability of public finances.
- Monetary policy: explicit inflation target of 2%.
- Riksbank gained complete independence in 1999.
- Bank guarantee was disbanded in 1996 and replaced by a deposit guarantee financed entirely by banks.
- Continued market liberalization in sectors such as electricity, railways, telecommunications, and civil aviation; emphasis on competitive and open markets.

### Political consequences
- 1991 election: Social Democratic Party (SAP) lost more seats than in any post-war election at that time, in favor of the Conservatives (Moderates).
- The centre-right government implemented “crisis packages” curbing facets of the welfare system (social benefits, unemployment aids, sickness benefits) to reduce budgetary burdens.
- Unpopular austerity measures contributed to a strong comeback by the Social Democratic Party (SAP) in the 1994 election.

*Source: wp1808 - 3.5  The Swedish Banking Crisis.*

### 3.7  The U.S. Dot-Com Episode of the late 1990s

### 3.7  The U.S. Dot-Com Episode of the late 1990s

### Overview
- The Dot-Com saga is characterized as one of the most dramatic stock market booms and crashes in U.S. history, with Information Technology (IT) corporations at its epicenter.
- Most economists date the beginning of the bubble toward the second half of the 1990s.
- The Internet technology became commercially available in the mid-1990s and drove rapid IT investment growth.

### Market dynamics and key statistics
- Between September of 1998 and March of 2000, the NASDAQ composite index rose by 170 percent.
- Within a year from their peak, NASDAQ composite and SP 500 indexes fell by around 60 percent and 20 percent, respectively.
- Both continued their decline during the following year, reaching, within two years of the bust, a trough around 75 percent and 40 percent below the peak.
- The Dow Jones Internet stock index plummeted by 93 percent from peak to trough.
- The economy lost around $5 trillion in total wealth from peak to trough.
- IT investment averaged around 24 percent between 1995 and 2000.
- Between 1998 to early 2000, the Internet sector earned over 1000 percent returns on public equity.

### Regulatory environment during the boom
- The 1990s saw a rapid deterioration in corporate governance and a wave of deregulation of the securities industry, enacted through congressional actions and weakened regulatory oversight.
- Two congressional laws increased hurdles against private securities litigation:
  - Private Securities Litigation Reform (PSLR) act of 1995 (enacted over a presidential veto).
  - Securities Litigation Uniform Standard (SLUS) act of 1998, which precluded class actions alleging securities fraud from being brought in state courts.
- Interest group influence and lobbying:
  - The American Institute of Public Accountants (AICPA) and the largest six accounting corporations spent around $17 million on campaign contributions in the decade leading up to the enactment of PSLR.
- Regulatory resource constraints and conflict-of-interest concerns:
  - The SEC budget stalled during the boom years (1993-2000) even as securities activity was growing far faster than before.
  - Accounting firms shifted focus from auditing to management consulting, raising conflict-of-interest concerns.
- Judicial shifts increased hurdles on securities lawsuits:
  - The “bespeaks caution” doctrine and the “fraud by hindsight” (FBH) doctrine became procedural obstacles for plaintiffs.
- The Glass-Steagall Act was repealed in 1999; the timing of repeal coincided with the boom.

### Post-crash regulatory responses and reforms
- Investigations and enforcement intensified after the crash:
  - The New York State Attorney General revived an eighty year old legislation to investigate research analysts, the NYSE, and financial institutions.
  - The National Association of Securities Dealers (NASD) brought actions under existing rules.
  - SEC investigations increased dramatically, including actions implicating auditing firms (e.g., the SEC implicated PricewaterhouseCoopers with over 8000 violations and brought a fraud case against Arthur Andersen, which subsequently went out of business).
- Sarbanes-Oxley Act (SOX), passed in July 2002:
  - Designed to address structural problems in the auditing industry that had been deregulated during the boom.
  - Created the Public Company Accounting Oversight Board (PCAOB), a quasi-public institution to oversee auditing.
  - Directed the SEC to “foster greater public confidence in securities research, and to protect the objectivity and the independence of securities analysts.”
  - Addressed off-balance sheet problems and provided legal protection for corporate whistle-blowers.
  - The SEC implemented rules enhancing disclosure about critical accounting matters contemporaneously.
- Stock exchanges responded:
  - The NYSE and the NASDAQ proposed new listing requirements affecting corporate governance and board composition.

### Assessment, debate, and consequences
- Academic and policy assessments:
  - Many legal scholars argue PSLR and SLUS weakened corporate governance and contributed to an environment that facilitated fraud.
  - Opinions on SOX are divided:
    - Some view SOX as the most important federal securities regulation improvement since the New Deal.
    - Others regard SOX as a political knee-jerk response that imposed unnecessary costs on corporations; debate over whether benefits exceed costs continues.
  - Calls for SOX repeal surfaced in the mid to late 2000s but were dampened by the financial crisis of 2008.
- Political and macroeconomic consequences:
  - The crash was politically muted and likely produced no major political upheaval, in part because:
    - The crash mainly affected un-leveraged stock market holdings of upper-income households.
    - The banking sector remained unscathed and the episode did not produce a systemic banking crisis.
    - The crash occurred early in the George W. Bush administration and shortly before the events of 9/11.
  - Monetary easing that followed these events helped support a strong recovery and a booming housing market.

*Source: wp1808 - 3.7  The U.S. Dot-Com Episode of the late 1990s*

### 3.9  The U.S. Great Recession of 2007-2009

### 3.9  The U.S. Great Recession of 2007-2009

### Political economy and the housing boom
- The same types of lending the government sponsored and the financial instruments it deregulated contributed to creating the environment that produced the crisis.
- Literature coverage: Lo (2016) reviews 21 books on the crisis; only three directly address the political economy of the crisis focusing on government sponsorship of mortgage finance.
- A substantial academic literature documents effects of financial regulations on lending and the political economy behind interventions (examples cited include Acharya, Congleton, Chwieroth, Igan, Mian, Wallison; empirical work by Dell’Ariccia et al., Mian et al., Dagher and Fu, Igan et al.).

### Government support for homeownership and GSE mandates
- Pro-ownership policies intensified in early 1990s with Congress’ enactment in 1992 of an affordable housing mandate for Fannie Mae and Freddie Mac.
- Key numeric thresholds and targets:
  - Affordable housing mandate: from 30 percent in 1992 to 55% in 2007.
  - “Special affordable” housing mandate: increased from 12 to 20 percent in 2001, with an objective target of 28 percent in 2008.
  - From 1993 to 2007 there were over 700 roll calls in the House related to affordable housing, home-ownership, or subprime (Congressional Research Service, as reported in Mian et al. (2008)).
  - American Dream Downpayment Act (2003): provided $200 million annually for downpayment assistance to low-income homebuyers.
- Consequences:
  - Increasing GSE purchase thresholds led agencies to increase purchases of subprime mortgage-backed securities, contributing to growth in risky lending and securitization by the private sector.
  - Evidence suggests HUD decisions were influenced by industry and Congress.

### Deregulatory moves and weakened oversight
- Preemption of state anti-predatory lending laws:
  - Office of Thrift Supervision preempted federally chartered banks from state mortgage regulations in 1996.
  - OCC followed in 2004; FDIC considered preemption of host-state laws on state banks (FDIC, 2005).
- Political contributions: mortgage bankers and brokers invested nearly $847,000 into Bush’s re-election campaign in 2004 (more than triple 2000 contributions).
- Repeal and regulatory forbearance:
  - Glass-Steagall Act pressure since 1980s; repeal in 1999 supported by Fed Chairman Greenspan, Treasury Secretary Rubin, Lawrence Summers, and majorities in Congress.
- OTC derivatives and CFMA:
  - Brooksley Born (CFTC) warned about OTC derivatives oversight; opposition came from Treasury, Fed, SEC; Born resigned in 1999.
  - 2000 Commodity Futures Modernization Act (CFMA) removed OTC derivatives transactions from many CEA requirements for eligible participants.
  - Notional value of the derivatives market at the time amounted to around $80 trillion.
  - CFMA is cited as a factor that contributed to the crisis by removing a multi-trillion dollar swaps market from regulatory oversight.
- SEC Consolidated Supervised Entities (CSE) program:
  - Voluntary program allowing certain broker-dealer holding companies to compute net capital using an alternative method that permitted increased leverage.
  - Eligibility note: a participant required total assets in excess of $10 million for CFMA eligibility context.
  - Reported leverage implication: rule allowed investment banks to increase leverage from 1:12 to 1:33 (figure highlighted by Susan Woodward).
  - CSE was criticized and discontinued in 2008.

### Crisis response and regulatory reform: Dodd-Frank Act (DFA)
- DFA enacted in 2010 as the most far-reaching overhaul of U.S. financial regulation since the 1930s.
- Aspects of DFA:
  - Overhauled oversight and supervision of financial institutions.
  - Provided a new resolution mechanism for large financial companies.
  - Created the Consumer Financial Protection Bureau (CFPB).
  - Introduced more stringent capital requirements and tightened regulation of credit rating agencies.
  - CFPB introduced comprehensive mortgage market reforms with detailed standards and requirements.
- Implementation status (as of end of 2015):
  - 267 of the 390 total required rules have been met.
  - 40 have been proposed but not implemented.
  - 83 have not yet been proposed.
- Reactions and debate:
  - Mixed views on whether DFA addresses crisis roots or is an excessive regulatory reaction.
  - Coverage remarks: DFA nearly 2300 pages; critics describe it as creating more bureaucracies and additional rulemaking responsibilities.

### Political aftermath and ongoing deregulatory pressures
- Political consequences:
  - After the crisis, the incumbent Republican Party lost seats in Congress and the presidency; economic conditions were a key factor.
  - Rise of political movements: Tea Party (opposed government transfers, taxation, and regulation) and Occupy Wall Street (protested economic inequality and corporate political influence).
- Public opinion and subsequent policy trajectory:
  - In 2012 more people favored financial regulation (YouGov and other polls); popularity of financial regulation declined as the economy recovered.
  - The Trump administration signaled intent to roll back many DFA regulations; executive actions and subsequent measures are likely to affect the CFPB and other DFA elements.

*Source: IMF Working Paper section 3.9, "The U.S. Great Recession of 2007-2009."*

### 3.10  Spain’s Housing Boom and Bust

### 3.10  Spain’s Housing Boom and Bust

### Scope and magnitude of the boom
- Real house prices doubled during the 2000-2007 period (based on OECD data).
- The pace of construction doubled between 1998 and 2008.
- The share of construction in GDP increased by 4 percentage points, reaching 10.7 percent in 2008.
- Homeownership rate pre-boom was around 80 percent (Belsky and Retsinas, 2004, Andrews and Sanchez, 2011); U.S. homeownership rate in the late 1990s was 70 percent.

### Main drivers and political sponsorship
- Primary drivers: low interest rate environment after joining the Eurozone, demographic factors including a high immigration level, and (local) government sponsorship.
- Politicization of the boom:
  - Politicization occurred at the regional level and was highly conspicuous.
  - The constitutional court decision in 1997 gave regional government complete control over zoning regulation, concentrating control over supply (land availability) and demand (credit supply) of housing at the regional level.
  - Weaker political competition was associated with more land development (Sole-Olle and Viladecans-Marsal, 2012).
  - Corruption around urban planning increased markedly.

### Role and behavior of the cajas
- The cajas were deposit-taking institutions whose profits were channeled into foundations with socially oriented projects; over time they became political tools.
- A 1985 law transferred control of the cajas to the regional governments.
- A 1988 law allowed cajas to branch out into other regions.
- Evidence of politicized lending:
  - Illueca, Norden, and Udell (2008) find cajas more likely to open new branches and extend new loans in politically aligned provinces.
  - Cuñat and Garicano (2009) show cajas run by previously political appointees performed significantly worse.
  - Higher education level and banking experience of the chairman correlated with better performance based on measures of delinquent loans during the crisis.
- Governance failures included cajas being forced to invest in public debt or state-owned enterprises and many cajas headed by politicians who stepped down from public service.

### Lending patterns and appraisal manipulation
- Lending for construction and development grew from 8 percent to nearly 30 percent of GDP between 1995 and 2005.
- Mortgage lending rose from 17 to nearly 50 percent of GDP over the same period (Beltran et al., 2010).
- Akin et al (2014) find evidence that cajas encouraged real estate appraisal firms to induce an upward bias in prices (around 30 percent).

### Corruption, governance, and public attention
- Transparency International corruption perception index ranking for Spain dropped from 146 to 180 between 2004 and 2008, primarily due to cases of urban planning corruption (Jimenez, 2009).
- The committee on Petitions of the European Parliament noted widespread petitions since 2003 and stated: “In no other EU country are citizens’ rights to their property abused in this way to this this extent.”
- Warnings and official concerns:
  - A 2003 report by the European Commission warned about a housing bubble.
  - Spanish authorities, particularly the independent central bank, expressed concerns about the bubble as early as 2003; several central bank studies indicated overvaluation.
  - No significant policy response by the government occurred prior to the 2004 elections.
  - The central bank introduced dynamic provisioning due to concerns of overheating (see, e.g., Saurina, 2009), which helped cushion the early crash but was not sufficient to prevent a crisis.

### Crisis onset and regulatory / institutional reforms
- Following Lehman’s collapse the Spanish government put in place a debt guarantee program.
- Subsequent interventions included capital injections in the first quarter of 2009 and creation of the FROB (a fund for orderly bank restructuring) to channel public funds to aid banking-sector restructuring.
- Reforms to cajas and banking oversight:
  - Governing bodies of the cajas were reformed; stricter criteria were introduced for representatives of regional governments (IMF, 2012).
  - Elected officials were prohibited from serving in the governing bodies.
  - Cajas transferred their banking business to newly formed commercial banks, separating banking business from social activities for the first time since their inception.
  - These new commercial banks were placed under the exclusive supervision of the Bank of Spain and were able to raise capital.
  - Financial reforms also included increases in bank capital requirements, strengthening the supervisory power of the Bank of Spain, and extending on-site continuous monitoring to all significant Spanish banks.
- Banking interventions and reforms continued well into 2012.

### Political repercussions
- Two parties dominated since the early 1980s: the Spanish Socialist Workers’ Party (PSOE) and the People’s Party (PP).
- Political shifts:
  - PP was in power during early stages of the boom but lost the 2004 general election.
  - PSOE was in power between 2004 and 2008 and was severely affected by the crisis, receiving its lowest share in the total vote since Spain’s transition to democracy.
  - Rise of new parties: Podemos founded in 2014 in the aftermath of protests against inequality and corruption.
  - In the 2016 general election the combined vote of PP and PSOE was around 55 percent—down from an average of of 80 percent in the previous five elections.

### Regulatory pendulum and comparative lessons
- The Spanish episode illustrates a broader pattern: financial booms often follow periods of deregulation and political sponsorship, and crises trigger comprehensive regulatory backlashes.
- Features common to many boom-bust episodes:
  - Deregulation and a light-touch approach often coincided with weakened supervision and the emergence of informal systems of regulation.
  - Warning signs were frequently ignored and supervisory responses often arrived only after crashes.
  - Post-crisis responses typically included new regulations, institutional overhauls, and strengthened supervisory bodies.
- Comparative notes:
  - Unlike Spain, Sweden’s crisis prompted a more muted institutional overhaul, possibly due to macroeconomic causes and stronger pre-existing governance.
  - In Spain, federal-level deregulations that transferred land-use and local bank powers to regional governments contributed to an informal regulatory system that encouraged construction, lending, and corruption.

*Source: wp1808 - 3.10  Spain’s Housing Boom and Bust*

### 1998. What we see is a significant decline in human resources during the boom period, as

### wp1808 - 1998. What we see is a significant decline in human resources during the boom period, as

### Human resources and regulatory staffing during boom–crisis episodes
- Data limitations and comparability constraints:
  - South Korea: data on central bank staffing cost available starting in 1995; a sub-category for financial regulation is plotted between 1995 to 1998. In 1998 the Financial Supervisory Service (FSS) was created and post-1998 breakdowns between total staffing and staffing dedicated to financial regulation are no longer available, making pre- and post-1998 levels not comparable, though growth rates are informative.
  - Spain: only budgetary cost of total human resources at the central bank (BdE) is available; a pronounced drop between 2004 and 2005 warrants caution in attributing the change solely to a regulatory cycle story.
  - Ireland: staffing cost (in real terms) at the Central Bank rose continuously; no slow-down during the boom is observed and there is an uptick in 2004 following creation of the Irish Financial Services Regulatory Authority (IFSRA) in 2003.
- Measurement caveat:
  - Staffing of financial regulators may be a poor indicator of regulatory intensity under a government adoption of a "light-touch" approach; this caveat applies to all presented data and is highlighted by the Irish case.
- Correlations and exceptions:
  - In the South Korea episode, private credit growth is plotted again private credit growth since the stock market was declining several years prior to the crisis; this is one of the few episodes where the stock market and private credit were not highly correlated.

### Political economy elements of the cycle (section 4.2) — stylized patterns
- Three recurring stylized patterns across booms:
  - Ruling governments during booms were often strong proponents of laissez-faire policies that eased financial regulation, while simultaneously embracing credit subsidies that deviated from laissez-faire doctrine.
  - Deterioration in governance: increases in symbiotic relationships between politicians and financiers and increases in corruption.
  - Political fallout: ruling parties often lost power by convincing margins following crashes; post-crash governments typically embraced financial regulation and sometimes displayed hostility towards the financial sector.
- Empirical suggestive evidence:
  - Fiscal costs of crises appear to be significant predictors of the extent of regulatory backlash; illustrated using The Bank Regulation and Supervision Survey (World Bank) data and regressions that include country fixed effects (survey waves: 2001, 2003, 2007, 2011). The regressions control for cross-sectional variation in the level of regulation across countries.
  - Limitations: comparable measures of voter sentiment across countries are lacking, constraining definitive empirical conclusions on whether re-regulatory waves reflect knee-jerk populism or considered policymaking.

### Historical and country-specific political dynamics and examples
- England (South Sea Bubble; 1825 crisis):
  - Parliament members heavily invested in boom companies, providing protection via forbearance, deregulation, and regulatory arbitrage.
  - Political ramifications varied: South Sea Bubble produced expulsions and prosecutions of MPs and cabinet members and elevated Robert Walpole; the 1825 crisis had muted political consequences due to dominance of Catholic emancipation issues.
- United States:
  - Roaring 1920s: vigorous support for laissez-faire; President Coolidge appointed regulators aligned with pro-business views; strong political push for homeownership.
  - 1980s–1990s: revival of laissez-faire under Ronald Reagan; renewed light-touch regulation and financial deregulation in the 1990s; politics and private interests influenced housing subsidies and regulatory trends.
  - Great Depression and 2008–2009 Great Recession: incumbents suffered electoral defeats (Herbert Hoover; Republicans in 2008); Democrats led on stronger government and regulatory roles; significant rise in political polarization following 2008.
- Japan:
  - Political sponsorship of the boom and deterioration in governance characterized the episode; informal regulation networks between banks and government thrived.
  - Ministry of Finance regulatory ability declined in the late 1980s; politicization of the Jusens contributed to residential and commercial booms; major reconstruction plan for commercial real estate influenced land price expectations.
  - Corruption and scandals were widespread during the boom, prompting major political reforms, including the 1994 electoral system reform.
- South Korea:
  - As growth slowed in the early 1990s, the Kim Young Sam government implemented a 100-day plan and influenced lending via Industrial Rationalization Loans; 56 percent of these loans were non-performing at the end of 1996.
  - Korean Development Bank (KDB) increased credit supply by around 20 percent a year between 1994 and 1996.
  - Close ties among politicians, banks, and Chaebols eroded regulatory oversight and facilitated risky lending and scandals.
  - Political consequences: the incumbent Democratic Liberal Party lost popularity after the crisis; Korea received a 58.4 billion loan from the International Monetary Fund; the reformed incumbent party lost the 1997 election to Kim Dae-Jung, who initiated administrative and financial reforms emphasizing transparency.
- Ireland:
  - Incumbent pro-market government (Fianna Fáil) moved toward light-touch, principle-based regulation and provided fiscal incentives and subsidies to the financial and housing sectors.
  - Political fallout: local election results of 2009 represented emphatic rejection of incumbent policies; Fianna Fáil lost 135 seats; in the first post-crisis general elections of 2011 Fianna Fáil suffered a crushing loss to a Fine Gael–Labor coalition which secured 68 percent of the parliament; post-crisis reforms focused on centralized bureaucracy and higher public-service accountability.
- Spain:
  - Local governments directly influenced booming mortgage lending by the cajas and construction growth tied to politically influential developers; corruption was rampant.
  - Between 2000 and 2008, 676 out of a total of 8116 Spanish municipalities reported instances of urban planning corruption.
  - Political consequences unfolded over several elections as the crisis intensified; two major parties (PSOE and PP) saw combined vote share decline and the emergence of the Indignados and Podemos, with Podemos and allied formations garnering around 20 percent of votes in 2015–2016 and contributing to difficulties in forming stable governing coalitions.

### Political consequences and governance reforms
- Incumbent parties typically lost power following crises, often prompting:
  - Sweeping administrative and political reforms aimed at improving governance, transparency, and regulatory capacity.
  - Shifts in electoral outcomes that elevated opposition parties campaigning on anti-bailout or anti-corruption platforms.
- Examples of governance reforms cited:
  - Japan: 1994 electoral reform at the district level.
  - Korea and Ireland: administrative reforms to downsize public sector and improve transparency and efficiency.
- Open question:
  - Whether post-crisis re-regulatory waves are primarily knee-jerk populist reactions or reflect considered diagnostics and policy design remains debated and is beyond the paper’s scope; empirical testing is limited by data on voter sentiment.

*Source: wp1808 (PDF chapter/section) — content as provided.*

### 4.3  Potential theories behind these patterns

### 4.3  Potential theories behind these patterns

### Overview
- Regulation tends to be laxer during booms and stricter during busts; from an ex post perspective this pro-cyclicality appears inefficient.
- The paper does not resolve whether financial regulation should be counter-cyclical; this question is left for future research.
- Theories discussed are illustrative, not exhaustive or methodical.

### Sentiment hypothesis
- Core idea:
  - Market optimism during booms reduces subjective probability of a bad financial event; pessimism during busts raises it.
  - If politicians and voters share the same information set and expectations, the median voter and an honest politician would optimally reduce costly financial regulations during optimism and increase regulation during pessimism.
  - Under these assumptions, financial regulation can be optimally (from an ex ante perspective) pro-cyclical.
- Mechanics and implications:
  - Labeled here as the “sentiment hypothesis” because the cycle is driven by changes in voters’ sentiment.
  - Low frequency of cycles can be attributed to Bayesian updating and collective memory loss.
  - The hypothesis assumes voters have more confidence in finance during booms than during busts and a more favorable opinion of financial regulation during busts compared to booms.
- Supporting evidence (U.S. survey patterns):
  - The General societal survey shows:
    - Confidence in banks plummeted during the last two banking crises, the SL and the Great Recession.
    - The Dot Com bust led to only a temporary decline in confidence in banks.
    - Confidence in banks peaked toward the height of both the dot com boom (around the repeal of Glass Steagall) and at the height of the housing boom.
    - The drop in confidence in large companies was very large and persistent following the Dot Com bust, consistent with stock declines and scandals.
  - Interpretation: voters appear relatively well informed about broad differences between banks and large companies.
- Empirical caveat:
  - The presumed negative correlation between confidence in banks and support for financial regulation is harder to establish empirically due to lack of data; examples cited include 2010 Dodd-Frank approval above 60 percent despite low confidence in banks and other poll evidence (e.g., Bowman, ONeil, and Sims, 2015).

### News effect / information acquisition timing
- Core idea:
  - Voters become interested and informed about the financial system and regulation primarily after crises; interest wanes over time, allowing regulation to erode and for regulators to be captured by concentrated private interests.
  - Equivalent framing: as collective memory of a crisis wanes, voters gain confidence and adopt a hands-off approach.
- Political dynamics:
  - Analogous stories exist for fiscal policy cyclicality in the literature (e.g., Rogoff, 1990; Tornell and Lane, 1999; Talvi and Vegh, 2005; Alesina and Tabellini, 2005).
  - Financial regulation differs from fiscal policy: it is noisier and its effects can take place with a substantial lag, giving politicians incentives to deregulate toward the beginning of their tenure.
- Modeling note:
  - Voters’ understanding of asymmetric information and politicians’ incentives implies these hypotheses should be tested in models with non-naive voters.

### Political credit cycles and asymmetric information about politicians
- Alternative theory (Villlaverde et al, 2013 and others):
  - It is harder to distinguish between good and bad politicians during booms because both appear successful.
  - During busts voters try to get more informed; excessive booms that lead to crashes happen under less talented politicians.
  - Implication: bad politicians deregulate, good politicians re-regulate.
- Model combining regulation and voting (Almasi, Dagher, Prato, 2017):
  - Combines a standard financial regulation model (in the spirit of Acharya, 2009) with a plain vanilla voting model that includes changes in voters’ expectations.
  - Results:
    - Voters’ expectations affect the regulatory cycle even under asymmetric information.
    - The model can produce an inefficient amplification of the regulatory cycle: a competent politician deregulates more than is ex ante optimal during optimism, and excessively regulates during busts, because a competent politician can signal competence at some inefficiency cost.
    - The more congruent the politicians are, the more muted the amplification mechanism; cycles are less likely to happen at large scale in countries with less corruption and more accountability (consistent with evidence from the Nordics).

### Role of lobbyists and political choices
- Observations:
  - Section 3 documents closer relationships between lobbyists and politicians during booms; post-crisis institutions tend to weaken such links.
- Interpretation:
  - Symbiotic relations between politicians and bankers may be fundamentally a political decision rather than solely the result of lobby power.
  - Bankers have strong incentives to influence politicians, especially when regulation increases, but the same signaling forces that lead politicians to deregulate during booms may explain their decision to form closer alliances with bankers.
  - Conversely, forces that lead to re-regulation can lead politicians to distance themselves from bankers.
  - This does not preclude lobby influence on re-regulatory processes, but relative influence may be diminished post-crisis—consistent with the paper’s evidence.

### Concluding remarks on theory and future research
- The listed mechanisms are not exhaustive; the empirical patterns presented can be further explored in future research.
- Key unresolved institutional questions:
  - To what extent can regulators be insulated from changes in politicians’ (and voters’) philosophy toward regulation?
  - What institutional changes are needed to preserve macro-prudential policy across political cycles?
- Acknowledgement:
  - Recognizing that politics can undo macro-prudential policy is an important step toward durable regulatory design.

*Source: wp1808 - 4.3  Potential theories behind these patterns*

### 1960. Princeton: Princeton University Press, 1963.

### wp1808 - 1960. Princeton: Princeton University Press, 1963.

### Financial crises, panics, and macroeconomic dynamics
- Gorton, G. (1988). Banking Panics and Business Cycles, Oxford Economic Papers 40, 751-781.
- Gorton, Gary B. Slapped by the invisible hand: The panic of 2007. Oxford University Press, 2010.
- Gorton, Gary. 2012. Misunderstanding financial crises: Whywe don’t see them coming. Oxford University Press, 2012.
- Hamilton, James D., ”Monetary Factors in the Great Depression,” Journal of Monetary Economics, 1987, 19, 145-169.
- Gerardi, Kristopher, Andreas Lehnert, Shane M. Sherlund, and Paul Willen. ”Making sense of the subprime crisis.” Brookings Papers on Economic Activity 2008, no. 2 (2008): 69-159.
- Funke, Manuel, Moritz Schularick, and Christoph Trebesch.”Going to extremes: Politics after financial crises, 18702014.” European Economic Review 88 (2016): 227-260.
- Philip T. Hoffman, Gilles Postel-Vinay and Jean-Laurent Rosenthal, Surviving Large Losses: Financial Crises, the Middle Class, and the Development of Financial Markets. Cambridge, MA: Harvard University Press, 2007. viii + 263 pp. 28(hardcover), ISBN: 978−0−674−02469−4.

### Banking regulation, structure, and reform
- Federal Reserve Bank of St. Louis. Dual Banking System in theUnited States. 1932
- Federal Reserve Bank of St. Louis. Federal Reserve Bulletin, August.
- Frankel, A., and P. Morgan. 1992. Deregulation and Competition in Japanese Banking.
- Fujii, Mariko, and Masahiro Kawai. ”Lessons from Japans banking crisis, 1991-2005.” (2010).
- Hall, Maximilian JB. ”Financial Reform in Japan: Causes and Consequences” Edward Elgar Pub (February 1999).
- Hall, Maximilian JB. ”Recent banking reforms in Japan: an assessment.” (2004).
- Illueca, Manuel, Lars Norden, and Gregory F. Udell (2008) Liberalization, Corporate Governance, and Savings banks. In EFA 2008 Athens Meetings Paper. 2008.
- Hotta, Kenusuke, 1992, ”Deregulation of the Japanese Financial Markets and the Role of Japanese Banks,” Occasional Paper series No 7, Center on Japanese Economy and Business, Columbia University.
- Honohan, P. (2010). The Irish banking crisis, regulatory andfinancial stability policy 2003-

### Shadow banking, derivatives, and market infrastructure
- Gorton, Gary, and Andrew Metrick. ”Regulating the shadow banking system.” Brookings Papers on Economic Activity 2010, no. 2 (2010): 261-297.
- Greenberger, Michael. ”The role of derivatives in the financial crisis.” Testimony before the Financial Crisis Inquiry Commission (2010).
- Heckinger, Richard, David Mengle, Robert Steigerwald, Ivana Ruffini, and Kirstin Wells. ”Understanding Derivatives: Markets and Infrastructure.”Federal Reserve Bank of Chicago (2013).

### Political economy, lobbying, and governance
- Friedman, Jeffrey. ”A crisis of politics, not economics: Complexity, ignorance, and policy failure.” Critical Review 21, no. 2-3 (2009): 127-183.
- Fernandez-Villaverde, Jesus, Luis Garicano, and Tano Santos. ”Political credit cycles: The case of the euro zone.” Journal of Economic Perspectives 27-3 (2013): 145166.
- Fernandez-Villaverde, J., Garicano, L., Santos, T, 2013. Political Credit Cycles: the case of the Eurozone. Mimeo
- Igan, Deniz, Prachi Mishra, and Thierry Tressel. ”A fistful of dollars: lobbying and the financial crisis.” NBER Macroeconomics Annual 26, no. 1 (2012): 195-230.
- Igan, Deniz, and Prachi Mishra. ”Wall street, capitol hill,and K street: Political influence and financial regulation.” Journal of Law and Economics 57, no. 4 (2014): 1063-1084.
- Groll, Thomas and O’Halloran, Sharyn and McAllister, Geraldine, Delegation and the Regulation of Financial Markets (December 15, 2015).
- Horowitz, Shale Asher, and Uk Heo. The political economy of international financial crisis: interest groups, ideologies, and institutions. Rowman Littlefield, 2001.
- Haggard, Stephan. The political economy of the Asian financialcrisis. Peterson Institute, 2000.
- Gulati, M., Rachlinski, J., Langevoort, D., 2005. Fraud by Hindsight. Cornell Law Faculty Publications.
- Gordon, Jeffrey N. ”Governance failures of the Enron board andthe new information order of Sarbanes-Oxley.” Conn. L. Rev. 35 (2002): 1125.

### Housing, real estate booms, and subsidies
- Grigsby, William G. ”Housing finance and subsidies in the United States.” Urban Studies 27, no. 6 (1990): 831-845.
- Grigsby, William G., and Steven C. Bourassa. ”Trying to understand low-income housing subsidies: lessons from the United States.” Urban Studies 40,no. 5-6 (2003): 973-992.
- Gonzalez, Libertad, and Francesc Ortega. ”Immigration andhousing booms: Evidence from spain*.” Journal of Regional Science 53, no. 1 (2013): 37-59.
- Gerardi, Kristopher, et al. ”Making sense of the subprime crisis.” Brookings Papers on Economic Activity 2008, no. 2 (2008): 69-159.

### Historical perspectives, bubbles, and securities regulation
- Galbraith, John Kenneth, The Great Crash 1929. Boston: Houghton Mifflin Company, 1954 and 1988.
- Garber, Peter M. (1990), ”Famous First Bubbles”, The Journal of Economic Perspectives, The Journal of Economic Perspectives, Vol. 4, No. 2, 4 (2): 3554
- Gerding, Erik, 2006. The Next Epidemic: Bubbles and the Growth and Decay of Securities Regulation. Connecticut Law Review, Vol 38:393.
- Harris, Ron. ”The Bubble Act: Its passage and its effects on business organization.” The Journal of Economic History 54, no. 03 (1994): 610-627.
- Hammond, Bray. Banks and Politics in America from the Revolution to the Civil War. Princeton University Press, 1957.
- Higgs, R., 1989. Crisis and Leviathan: Critical episodes in the growth of American government. Oxford University Press, USA.

*wp1808 - 1960. Princeton: Princeton University Press, 1963.*

### 2008. A report to the Minister of Finance. Dublin: The Stationery Office.

### wp1808 - 2008. A report to the Minister of Finance. Dublin: The Stationery Office.

### Overview
- Bibliographic compilation of scholarly and policy literature related to financial crises, banking regulation, political economy, housing booms and busts, and associated regulatory and institutional responses.
- Geographical and institutional focus areas evident in the citations include: Japan, Spain, the United States, Korea, Ireland, and cross-country/historical studies.
- Time coverage of referenced works spans historical analyses (19th and early 20th century) to contemporary assessments and working papers through at least 2016.

### Major themes and recurring topics
- Financial crises: causes, mechanics, and historical case studies
  - Examples: "Manias, panics, and crashes" (Kindleberger and Aliber, 2001); "This time is different: eight centuries of financial folly." (Reinhart and Rogoff, 2009).
- Banking regulation, deregulation, and reform
  - Examples: "The regulation and reform of the American banking system, 1900-" (White, Eugene Nelson) and works on Glass-Steagall, Dodd-Frank, and Basel Core Principles.
- Political economy of financial crisis and policy responses
  - Examples: "The political economy of financial crisis" (Patel, Dharmesh Ramesh, 2013); "The Political Economy of the Subprime Mortgage Credit Expansion" (Mian, Sufi, Trebbi, multiple entries).
- Country-specific experiences and lessons
  - Japan: multiple entries on the Japanese banking crisis and asset price bubble (Hoshi & Kashyap; Okina, Shirakawa, Shiratsuka; Ueda).
  - Spain: housing, banking, corruption, and reform (Saurina, Santos, Jiménez, Villoria, Robles-Egea & Delgado-Fernández).
  - United States: housing finance, regulatory history, and crisis drivers (Kaufman & Mote on Glass-Steagall; Labaton on SEC oversight; Shiller; Wallison).
  - Korea: analyses of the 1997-98 crisis and reforms (Park; Kataoka; Kihwan).
- Housing finance, property markets, and urban development
  - Examples: "How housing killed the Celtic tiger: Anatomy and consequences of Irelands housing boom and bust." (Norris & Coates, 2014); "Government Interventions in Housing Finance MarketsAn International Overview." (Lam, 2011).
- Financial liberalization, credit booms, and macro-financial linkages
  - Examples: "Financial Globalization, A Reappraisal." (Kose et al., 2006); "Credit booms gone bust: Monetary policy, leverage cycles and financial crises, 1870-2008." (Schularick & Taylor, 2009).
- Governance, corruption, lobbying, and political influence on financial policy
  - Examples: "A fistful of dollars: lobbying and the financial crisis." (Igan, Mishra, Tressel, 2011); "Building boom and political corruption in Spain." (Jiménez, 2009).

### Representative influential works cited (selection with exact citation lines as in source)
- Horowitz, Shale Asher, and Uk Heo, eds. The political economy of international financial crisis: interest groups, ideologies, and institutions. Rowman Littlefield, 2001.
- Hoshi, Takeo, and Anil Kashyap. ”The Japanese Banking Crisis:Where did it come from and how will it end?.” In NBER Macroeconomics Annual 1999, Volume 14, pp. 129-212. MIT, 2000.
- Hoshi, Takeo, Anil K. Kashyap. ”Japan’s financial crisis and economic stagnation.” The Journal of Economic Perspectives 18, no. 1 (2004): 3-26.
- Igan, Deniz, Prachi Mishra, and Thierry Tressel. A fistful ofdollars:  lobbying and the financial crisis. No. w17076. National Bureau of Economic Research, 2011.
- IMF (2012). Safety Net, Bank Resolution, and Crisis Management Framework. Financial Sector Assessment Program Update: Spain, technical note. May2012.
- IMF (2014a). Ireland:  Detailed Assessment of Observance of Basel COre Principles for Effective Banking Supervision. IMF Country Report No. 14/135.
- Kaminsky, G. L., Reinhart, C. M. (1999). The twin crises: thecauses of banking and balance-of-payments problems. American economic review, 473-500.
- Kose, M. Ayhan, Prasad, Eswar, Rogoff, Kenneth, and Wei, Shang-Jin.(2006) ”Financial Globalization, A Reappraisal.” IMF Working Paper 06/189.
- Kindleberger, C.P and R. Aliber, 2001. Manias, panics, and crashes. Palgrave Macmillan, 2001.
- Mian, Atif, Amir Sufi, and Francesco Trebbi. The political economy of the subprime mortgage credit expansion. No. w16107. National Bureau of Economic Research, 2010.
- Mian, Atif, Amir Sufi, and Francesco Trebbi. ”Resolving debt overhang: political constraints in the aftermath of financial crises.” American Economic Journal: Macroeconomics 6, no. 2 (2014): 1-28.
- Reinhart, Carmen M., and Kenneth Rogoff. This time is different: eight centuries of financial folly. princeton university press, 2009.
- Schularick, Moritz, and Alan M. Taylor. Credit booms gone bust: Monetary policy, leverage cycles and financial crises, 1870-2008. No. w15512. National Bureau of Economic Research, 2009.
- Shiller, Robert J. The subprime solution: how today’s global financial crisis happened, and what to do about it. Princeton University Press, 2012.
- Saurina, Jesus, 2009. Dynamic Provisioning: The Experience of Spain. The World Bank, Crisis Response, July 2009, Number 7.
- White, Eugene Nelson. ”The political economy of banking regulation, 18641933.” The Journal of Economic History 42, no. 01 (1982): 33-40.
- Wilmarth Jr, Arthur E. ”Dodd-Frank Act: A Flawed and Inadequate Response to the Too-Big-to-Fail Problem, The.” Or. L. Rev. 89 (2010): 951.

### Implicit analytical directions and policy concerns signaled by the citations
- Importance of institutional design for crisis prevention and resolution: frequent references to Basel principles, IMF assessments, and national regulatory reforms.
- Political economy drivers of crisis dynamics and reform inertia: multiple entries on lobbying, political corruption, and electoral foundations of regulation.
- Cross-country lessons: comparative studies of Japan, Spain, Korea, Ireland, and the United States used to draw historical analogies and reform lessons.
- Interplay between housing markets, credit expansion, and macro-financial stability: extensive literature cited on housing booms, mortgage markets, and dynamic provisioning.

*Source: Bibliographic entries from "2008. A report to the Minister of Finance. Dublin: The Stationery Office." (wp1808).*

### 1929. Princeton University Press, 1983.

### 1929. Princeton University Press, 1983.

### The Budget and Staffing of Financial Regulation in the U.S.
- Time span shown: 1960 to 2013.
- Two series plotted:
  - Budget (in real million dollars of 2005), left axis.
  - Full-time Staff, right axis.
- Data sources: study from the Weidenbaum Center (Washington University) and the Regulatory Studies Center (George Washington University) derived from the Budget of the United States.

### The Budget of the Securities and Exchange Commission
- Time span shown: 1985 to 2005.
- Two series plotted:
  - Budget (in real million dollars of 2000), left axis.
  - S&P 500 (in real dollars of 2000), right axis.
- Data source: budget of the SEC.

### The Budget of Financial Regulators: International Episodes
- Panel of four country/episode figures:
  - Japan (top left):
    - Series: No. of employees (MoF), left axis; Nikkei index (in real Yen of 2000), right axis.
    - Time span shown: 1980 to 2005.
    - Staffing data source: Bank of Japan.
  - South Korea (top right):
    - Series: Budget (in real billion Won of 2000), left axis; Growth in real private credit, right axis.
    - Time span shown: 1990 to 2010.
    - Notes: Authority of financial regulation shifted partly from the Bank of Korea to a new agency (FSS); pre- and post-crash figures are not comparable in levels.
    - Budget data sources: Bank of Korea and Financial Supervisory Service.
  - Spain (bottom left):
    - Series: Budget (in real million Euros of 2000), left axis; IBEX index (in real Euros of 2000), right axis.
    - Time span shown: 2000 to 2010.
    - Budget data source: Bank of Spain (BdE).
  - Ireland (bottom right):
    - Series: Budget (in real million Euros of 2000), left axis; ISEQ index (in real Euros of 2000), right axis.
    - Time span shown: 1995 to 2010.
    - Budget data source: Central Bank of Ireland.

### Confidence in Corporations and Banks in the U.S.
- Time span shown: 1970 to 2010.
- Two series plotted:
  - Confidence in Banks and Financial Institutions (percent of respondents who have a great deal of confidence).
  - Confidence in Major Companies (percent of respondents who have a great deal of confidence).
- Data source: General Social Survey 2012 produced by the National Opinion Research Center at the University of Chicago.

### Empirical Results — Dependent variable: Regulation on bank capital
- Regression setup:
  - Dependent variable: degree of bank capital regulations from The Bank Regulation and Supervision Survey (survey years: 2001, 2003, 2007, 2011). A Post-crisis dummy is assigned for the survey taken in 2011.
  - Controls: country and time (survey) fixed effects. Robust standard errors in brackets.
  - Observations: 230. Number of newid: 106. Country fixed effects: Y Y Y Y. R-squared by column: 0.262, 0.308, 0.265, 0.336.
- Coefficient estimates (columns (1)–(4)):
  - Post-crisis:
    - (1) 1.246 [0.703]
    - (2) 1.721** [0.498]
    - (3) 1.260 [0.708]
    - (4) 1.955*** [0.490]
  - Post-crisis*GDP per capita 2006:
    - (1) -0.0140 [0.00984]
    - (2) 0.0110 [0.0220]
    - (3) -0.0193* [0.00954]
    - (4) 0.00224 [0.0228]
  - Post-crisis*Financial interconnectedness:
    - (1) -0.000678 [0.00577]
    - (2) -0.00354 [0.00512]
    - (3) -0.000877 [0.00582]
    - (4) -0.00533 [0.00559]
  - Post-crisis*Trade interconnectedness:
    - (1) 0.00765 [0.00634]
    - (2) 0.00727 [0.00498]
    - (3) 0.00787 [0.00646]
    - (4) 0.00787 [0.00487]
  - Post-crisis*English legal origin:
    - (1) -0.194 [0.469]
    - (2) -0.603 [0.421]
    - (3) -0.185 [0.463]
    - (4) -0.733 [0.470]
  - Post-crisis*Democracy:
    - (1) 0.223 [0.565]
    - (2) 0.297 [0.533]
    - (3) 0.212 [0.563]
    - (4) 0.291 [0.517]
  - Post-crisis*Crisis dummy:
    - (3) -2.103* [1.036]
    - (4) -2.921* [1.355]
  - Post-crisis*Fiscal costs (%ofGDP):
    - (3) 0.0287*** [0.00633]
    - (4) 0.0982*** [0.0172]
- Notes on variables: Financial and trade interconnectedness indexes taken from IMF sources. Crisis dummy indicates whether the country experienced a banking crisis during the global financial crisis (Laeven and Valencia, 2012), which also provides the fiscal cost of the banking crisis.

### Empirical Results — Dependent variable: Regulation on official supervision power
- Regression setup:
  - Dependent variable: official supervision power index from The Bank Regulation and Supervision Survey (survey years: 2001, 2003, 2007, 2011). A Post-crisis dummy is assigned for the survey taken in 2011.
  - Controls: country and time (survey) fixed effects. Robust standard errors in brackets.
  - Observations: 312. Number of newid: 102. Country fixed effects: Y Y Y Y. R-squared by column: 0.104, 0.104, 0.124, 0.129.
- Coefficient estimates (columns (1)–(4)):
  - Post-crisis:
    - (1) 0.659 [1.217]
    - (2) 0.756 [1.282]
    - (3) 1.122 [0.967]
    - (4) 1.498 [0.887]
  - Post-crisis*GDP per capita 2006:
    - (1) 0.0750** [0.0257]
    - (2) 0.0817** [0.0276]
    - (3) 0.0432 [0.0271]
    - (4) 0.0591* [0.0297]
  - Post-crisis*Financial interconnectedness:
    - (1) 0.0138 [0.0111]
    - (2) 0.0135 [0.0113]
    - (3) 0.0141 [0.0108]
    - (4) 0.0132 [0.0110]
  - Post-crisis*Trade interconnectedness:
    - (1) -0.00711 [0.0161]
    - (2) -0.00754 [0.0165]
    - (3) -0.0115 [0.0119]
    - (4) -0.0135 [0.0115]
  - Post-crisis*English legal origin:
    - (1) 1.378 [1.326]
    - (2) 1.289 [1.397]
    - (3) 1.633 [1.369]
    - (4) 1.395 [1.405]
  - Post-crisis*Democracy:
    - (1) -0.397 [1.469]
    - (2) -0.378 [1.456]
    - (3) -0.573 [1.443]
    - (4) -0.539 [1.393]
  - Post-crisis*Crisis dummy:
    - (3) -0.594 [1.041]
    - (4) -1.848 [1.004]
  - Post-crisis*Fiscal costs (%ofGDP):
    - (3) 0.227*** [0.0228]
    - (4) 0.264*** [0.0177]
- Notes on variables: Financial and trade interconnectedness indexes taken from IMF sources. Crisis dummy indicates whether the country experienced a banking crisis during the global financial crisis (Laeven and Valencia, 2012), which also provides the fiscal cost of the banking crisis.

*Source: wp1808 - 1929. Princeton University Press, 1983.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp1808.pdf_