The Journal of European Economic History - 2015 issue 2

Bancaria Editrice
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Political Independence and Technical Independence of Central Banks: A Crucial Distinction for European Monetary and Banking Union
European economic history of the 19th and 20th centuries provides several examples of monetary unions, that is to say, mergers into a single monetary administrations of several previously distinct monetary areas. Comparison of these processes with the on-going trend of European monetary union shows that there are significant differences and less important similarities. Even so, such a comparison provides fruitful insights on the main problems that the process of European monetary union must face. One of these problems is the role of central banking, and the question of central banking independence. Current literature on the subject usually presents a holistic definition of the concept and links it to the goal of preservation of monetary stability. However, for historical and analytical reasons, a distinction should be made between political independence and technical independence of a central bank. Whenever the political decision-makers set some goal for the central bank, the central bank cannot be considered as politically independent. Whenever the central bank is allowed to pursue its goals, however chosen, without government interference, the central bank can be considered technically independent. Historical analysis shows that central banks are not usually politically independent, but became technically independent during the 20th century. The preservation of this distinction appears as a crucial element for a successful European monetary and banking union in the 21st century.
Systemic Shocks and Financial Crises: Lessons from Argentina, 1991-2001
Throughout the second half of the 1990s, conventional indicators of bank fundamentals depicted the Argentine banking system as potentially resistant to liquidity and solvency shocks. Against this background, in 2001 the Argentine banking system experienced a massive run on deposits that culminated in the disruption of the payment system. We argue that the drawbacks of the currency board regime have been at the roots of this crisis. The dollarization of the economy, the huge overvaluation of the real exchange rate and the exposure to Government debt, all contributed to the building up of the banks’ critical vulnerabilities. The lack of monetary and exchange-rate tools made it difficult to address the recession of the last years of the 1990s and triggered a collapse of confidence in the sustainability of the public debt and the currency board itself. In such a context, the banks’ vulnerabilities became explicit so that the collapse of confidence affected the banking system, becoming the vehicle for financial disaster.
Banking-System Transformations After the Crisis and Their Impacts on Regulation
The serious financial crisis, which started in 2007 in the heart of capitalism, and became widespread throughout the world in 2008, is still unfolding with important structural repercussion and transformations. Such transformations are already taking place, for example, in financial systems, be it because of the impacts of the crisis itself – which caused a greater concentration of assets in various markets – or because of new regulations in the financial sector that have been put in place multilaterally in many different countries, as well as new strategies being adopted by capitalist agents in this new context. This article aims at plotting and analyzing some of the most important transformations taking place in financial systems since the beginning of the crisis, focusing on the banking systems of the US and the European Union. In addition to a brief introduction, this paper is divided into five sections. In the first section, the main transformations that the US and European banking systems went through before the crisis are analyzed. Section two discusses the crisis’ effects on the concentration found in the American and European banking systems. The following section highlights some elements of the crisis that have affected the process of internationalization by banks, again focusing on the US and Europe. Section four analyzes the new regulation and supervision measures that started to surface in the two aforementioned economic regions, as well as their potential impact on the system as a whole. The last section is dedicated to final comments, featuring reflections about where the world financial system is headed after the crisis.
Bank-Crisis Management Practices in Italy (1978-2015) and Their Perspectives in the Italian Cooperative Credit Network
Bank recovery and resolution practices so far applied have shown strong limits in the aftermath of the 2007-2008 global financial crisis. The new EU legislation concerning bank-crisis management is intended to challenge such practices. The Italian Cooperative Credit (CC)’s pioneering experience of the Guarantee Central Fund (FCG) – established on a voluntary basis in 1978 in line with the spirit of mutuality shared by the credit cooperation movement across Europe since the late 1800s – contains important lessons on how to re-conceptualize and re-design the financial safety-net of a small banks’ network within the Banking Union. Past research has shown that a private-sector approach to deposit insurance can function better than a government-based one, preventing moral hazard behaviours of small member banks and the adverse effects of their failures on the economic output of associated communities. The ex-ante self-financing mechanism implemented by FCG to support Cooperative Credit Banks (CCBs) successfully avoided depositors pay-outs, further disbursements by member banks, and pro-cyclical effects on local economies. Overall, the Italian CC financial safety net enabled the market exit of 400 CCBs over the last 40 years without any failures, contagion spillovers to the country’s economic system or societal value destruction. Two key lessons that, among others, can be drawn are that (a) a sectoral DGS should better serve as a “risk-minimizer” so as to reduce the likelihood and amount of losses for member banks; (b) cohesiveness produces high economic and social returns at both micro and macro levels. Conclusively, the fruitful results of the above experience should be contrasted with the consequences of small-bank failures in the U.S. market and the huge amount of state aid granted worldwide during the recent global financial crisis.
Financial Integration and Banking Regulation in Europe in Contemporary Capitalism
This paper discusses the completeness of the European Union framework according to a bibliographic review of Keynesian theory and financial domination approach in response to the Optimal Currency Area debate in Europe. The hypothesis is that the monetary union in Europe is irreversible. The current stage of bank regulation and financial prudential supervision is analysed through a comparison between the official purposes of the European Commission for the monetary union, as well as its actions in dealing with the recent crisis, and alternate ideas for resolving both current critical scenarios and the Union’s failures. In order to illustrate this framework, the European Central Bank’s financial integration indicators are presented as a background. The European Banking Union emerges as one of the main points of possible reforms after recent facts and negotiation issues, despite its preliminary stage. The main conclusion is that dynamic tools must be applied aiming to overcome the rigidity of the Maastricht Treaty without breaking it, pointing to a federalisation of the European Union as a reasonable fate, if one has in mind the pressure over members for abandoning the agreement.
Reviews of books
C. Hanes, S. Wolcott (eds.) - Research in Economic History
P. Germuska - Unified Military Industries of the Soviet Bloc. Hungary and the Division of Labour in Military Production
T. Herzog - Frontiers of Possession. Spain and Portugal in Europe and the Americas
M. Moroni - L’impero di San Biagio. Ragusa e i commerci balcanici dopo la conquista turca (1521-1620)
G. La Malfa - John Maynard Keynes
I. Maes, F. Moss (eds.) - Progress Through Crisis?
C. Manera - The Great Recession. A Subversive View
A.A. Persico - Il Codice di Camaldoli. La Dc e la ricerca della “terza via” tra Stato e mercato (1943-1993)
Books received