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This chapter surveys papers and the related literature on the relationship between banks’ creditor structure and bank risk during the period of liquidity crises. Departing from the conventional banking literature, which points to deteriorating asset quality to be the culprit for the amplified bank risk in the midst of financial crises, the studies in the aftermath of the global financial crisis look into the liability side of the bank balance sheet as a potential source for the augmented bank risk during the financial crisis when there is a liquidity contraction. Recent studies theorize and provide empirical evidence that banking institutions with a greater share of large lenders and an economy with high noncore bank liabilities in the banking sector may experience heightened bank risk or country risk. We also search for policy implications from this survey.

This chapter aims to examine the position of the banking system and the effect of the COVID-19 pandemic on bank liquidity in six Western Balkan Countries. We aim to analyse the current financial parameters of the banking system to determine the impact of the pandemic’s various risks on the banking liquidity stability in response to the capital reserves of central banks of the respective countries. This chapter deals with cross-country comparison analysis of how the government responded including fiscal stimulus packages to prevent the financial downturn and the impact on liquidity retention. The methodology is based on a comparative data analysis using primary and secondary sources. Although it is too early to have full evidence of the depth of the pandemic impact, the findings show that because of the immediate actions undertaken by the liquidity management of each country and also as a result of the favourable liquidity position before the pandemic Crisis, the banking sector had sufficient reserves to overcome the risk of crisis. Moreover, all six Balkan Countries have adapted the regulatory framework in line with international emergency measures to maintain financial stability. The measures and instruments implemented by countries have generally complied with the Basel Committee’s instructions. The measures and instruments implemented by countries have generally complied with the Basel Committee’s instructions.

This chapter analyses the causes and effects of the financial crisis that commenced in 2008, and it examines the dramatic government rescues and reforms. The outcomes of this, the most severe collapse to befall the United States and the global economy for three-quarters of a century, are still unfolding. Banks, homeowners and industries stood to benefit from government intervention, particularly the huge infusion of taxpayer funds, but their future is uncertain. Instead of extending vital credit, banks simply kept the capital to cover other firm needs (including bonuses for executives). Industry in the prevailing slack economy was not actively seeking investment opportunities and credit expansion. The property and job markets languished behind securities market recovery. It all has been disheartening and scary – rage against those in charge fuelled gloom and cynicism. Immense private debt was a precursor, but public debt is the legacy we must resolve in the future.

This chapter investigates a shock transmission path between a home country (a country where globalized banks’ headquarters are located) and a host country (Indonesia as the emerging market) through the lending channel of global banks’ local branches (i.e., the internal transfer channel). Using novel data of monthly individual foreign bank’s balance sheet in Indonesia, the author finds the evidence that shocks to a parent bank and a home economy are transmitted to a host economy through the foreign banks’ internal capital market. With the Indonesia banks’ capital injections and their difficulty in financing dollar funds without risk premiums since the 1998s crisis, the foreign banks’ dollar lending in Indonesia is a good showcase of internal capital markets. A change in a home stock market index and industrial production appears to have a negative effect on growth rates in foreign currency loans of foreign banks in the host market. On the other hand, high growth rates in the parent bank’s stock price in the home market lead to an increase in foreign banks’ US dollar lending in the host country. This effect does not appear in local currency lending because limited hedging instruments against foreign exchange risk results in immobility of bank capital in the local currency.

Following the Supreme Court’s 1988 decision in Basic, securities class plaintiffs can invoke the “rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market” [the “fraud-on-the-market” doctrine] to prove classwide reliance. Although this requires plaintiffs to prove that the security traded in an informationally efficient market throughout the class period, Basic did not identify what constituted adequate proof of efficiency for reliance purposes.

Market efficiency cannot be presumed without proof because even large publicly traded stocks do not always trade in efficient markets, as documented in the economic literature that has grown significantly since Basic. For instance, during the recent global financial crisis, lack of liquidity limited arbitrage (the mechanism that renders markets efficient) and led to significant price distortions in many asset markets. Yet, lower courts following Basic have frequently granted class certification based on a mechanical review of some factors that are considered intuitive “proxies” of market efficiency (albeit incorrectly, according to recent studies and our own analysis). Such factors have little probative value and their review does not constitute the rigorous analysis demanded by the Supreme Court.

Instead, to invoke fraud-on-the-market, plaintiffs must first establish that the security traded in a weak-form efficient market (absent which a security cannot, as a logical matter, trade in a “semi-strong form” efficient market, the standard required for reliance purposes) using well-accepted tests. Only then do event study results, which are commonly used to demonstrate “cause and effect” (i.e., prove that the security’s price reacted quickly to news – a hallmark of a semi-strong form efficient market), have any merit. Even then, to claim classwide reliance, plaintiffs must prove such cause-and-effect relationship throughout the class period, not simply on selected disclosure dates identified in the complaint as plaintiffs often do.

These issues have policy implications because, once a class is certified, defendants frequently settle to avoid the magnified costs and risks associated with a trial, and the merits of the case (including the proper application of legal presumptions) are rarely examined at a trial.

Purpose – This chapter draws on several areas of scholarship to consider the impact of economic crises on the utility of economic costly signalling theory (ECST).

Design/methodology/approach – The chapter introduces the problem of economic crises into the debate over ECST to better understand its practical utility. It first highlights the pacific benefits anticipated by ECST to provide a conceptual baseline. It then reviews contemporary economic and political science literature that links economic integration, economic crises and external conflict. Finally, it introduces a perspective on how the conditions created by economic crises reduce the ability and willingness of states to send economic costly signals.

Findings – The chapter finds that the value of ECST to security policy is problematic when considering the occurrence of economic crises.

Originality/value – This chapter advances the debate over capitalist peace theory by introducing the problem of economic crises to the discourse.

The development of the Russian banking sector was subject to numerous criticisms and pessimistic forecasts in the recent years. The observers pointed out the low ability of the Russian banking sector to provide financial intermediation in the economy and thus to perform the key functions which society expects from the banking sector – mobilization of savings and financing investments in the real sector of the economy. The study seeks to explain above-mentioned features from institutional, economic, and political perspective on the basis of the existing knowledge of the nature of transition banking.

Purpose – This chapter compares the stability of the U.S. Dual Banking system's two bank groups, national and state banks, in light of the current financial crisis. The goal of the chapter is to answer three distinct questions: first, is there a difference in the (balance sheet) fragility between the two groups and, second, to what extent has the balance sheet fragility of both groups changed after the escalation of the financial crisis beginning in August 2007? Building on that, the third question asks to whether or not the respective regulatory agencies of both bank groups are responsible for these changes in balance sheet fragility in light of the financial crisis.

Methodology – To answer these questions the chapter uses U.S. Call Report data containing full quarterly balance sheets and P&Ls of all U.S. commercial banks over the period 2005–2008. Anecdotal evidence as well as univariate and multivariate difference-in-difference methodology focusing on the immediate pre-crisis period Q1/2005–Q3/2007 and the crisis period Q3/2007–Q4/2008 are applied.

Results – Highly significant and robust results show that, ceteris paribus, national banks reduced their potential balance sheet fragility after the escalation of the crisis in August 2007 by reducing lending and liquidity creation stronger than state banks. Anecdotal evidence supports the empirical findings. Although both FDIC and OCC did not anticipate the adverse effects of the crisis, the OCC publicly showed an earlier reaction to liquidity-related problems than the FDIC.

Originality – The chapter is the first of its kind to analyze bank fragility around the escalation of the financial crisis and the role of the regulatory agencies. The chapter holds especially interesting policy implications in the light of the current discussion about the future regulation of the banking markets.