POLI 445 Lecture Notes - Lecture 13: Making Money, Brady Bonds, Matthew Kapstein
30 Jan 2018
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Document Summary
If the smaller banks behaved, the regulatory bodies would look the other way (allow banks to continue reporting that they would receive the loan amount + interest) If they didn"t, the regulatory bodies threatened to reveal the condition of the small bank to its investors, damaging its reputation and profits. In 1988 and 1989, the government changed regulations on credit cards in the us; the cap is shifted upwards: gives the banks another stream of income; it makes them richer. Long-term solutions: only start to emerge by 1989/1990, both parties have accepted that they"re going to take hits and lose money in this situation, baker plan had been a band-aid. Lack of cooperation and information sharing among banks was another problem that needed to be addressed. Informational asymmetry problem could"ve been solved by banks cooperating earlier: you didn"t want to make one bank more well-off than every other bank, and, governments didn"t want their banks to be in less-competitive positions.
