Institutions and Policies for Maintaining Financial Stability

When journalists from other countries would ask me in the 1980s how the United States could suffer such embarrassingly large losses in its savings and loan, and later its banking, industry, I would be somewhat embarrassed myself, as an American citizen, trying to explain how things could go so wrong in such a developed country. A decade later, the tables seemed to have turned. Many countries have since experienced serious banking problems, and when measured against the size of the economy, the losses suffered by the United States (about 3 percent of the nation’s GDP) actually turn out to have been quite low.1