Co-operative Banking in the Netherlands in pre-Second World War

bust had followed on boom. It made them very reticent to buy-in to the new paradigm of ‘this time it is diff erent’.

So, what lessons does history hold? We all know that history does not repeat itself. However, it can contribute to a broader perspective which can help us to see parallels and diff erences and to identify structural changes. What ‘policy conclusions’ can be drawn from this? We may at least try to avoid the mistakes of the past. Policymakers must fi nd a consensus that can contribute to a more robust, or at least less fragile, economic policy framework. A very basic starting point must be the recognition that banks are inherently risky. Actions in diff erent areas will have to be undertaken or stepped up. Strengthening corporate governance is a clear priority. Also an increase in banks’ capital and liquidity ratio’s fi gures prominently on the reform agenda. Moreover, a more countercyclical capital ratio framework is required. Th is should, to a certain degree, have an element of automaticity, while there might also be a role for independent boards.

Why was this not done earlier? Surely, diff erent elements have blinded both fi nancial institutions and regulators: (1) banks were happy, as they were accumulating profi ts; (2) central banks were happy as their primary objective of price stability was, more or less, achieved; (3) like in other booms, there was the (faulty) opinion of ‘this time it is diff erent’; and (4) economic theory was based on analytical frameworks where history was absent and crises could not happen. So explaining, or even acknowledging them, was not possible.

Where does all this leave economic and fi nancial history? Personally, I would conclude that the political economy of economic and fi nancial reform merits a very prominent place on the future research agenda of historians and economists alike.

Th e views expressed are those of the author and do not necessarily refl ect those of the National Bank of Belgium.