All modern governments rely on chartered banks as key elements of their financing arrangements. This can be a major problem for banks because governments cannot commit not to expropriate, especially under particularly trying fiscal circumstances. The risk of expropriation is especially high in autocracies, where the check of democratic approval is absent.Of course, it's pretty high in the United States too, as Jamie Diamond is now finding out. But, back to Calomiris;
In particular, the mutual dependency between banks and sovereigns contributes to the risk of banking crises driven by problems in state finances. Taking account of political influences that operate through the Game of Bank Bargains also gives rise to shocks that are generally not envisioned in economic approaches to bank risk.
....Of the 124 non-communist countries [we, in our forthcoming book] analyze in [our] cross-country comparison of banking fragility, 41 were crisis-free from 1970 to 2010. Sixty two countries had one crisis. Nineteen countries experienced two crises. One country underwent three crises, and another weathered no less than four crises. That is to say, countries that underwent systemic banking crises out-numbered countries with stable banking systems by two-to-one; and 17 percent of the countries in the world appear to have been preternaturally crisis prone.Not too surprisingly the two most crisis prone countries were Argentina--Do cry for thee!--and Congo (Heart of Darkness-land). The other bad boys being;
Chad, Nigeria, the Central African Republic, Cameroon, Kenya, the Philippines, Thailand, Turkey, Bolivia, Ecuador, Brazil, Mexico, Colombia, Costa Rica, Chile, Uruguay, Spain, Sweden, and…the United States.But, not Canada.
Therein lies a tale...which we'll be getting to shortly.