Robert M. La Follette School of Public Affairs
Tuesday, April 21, 2020

Copelovitch examines political roots of financial crises in Banks on the Brink

Mark Copelovitch Mark Copelovitch

La Follette School Professor Mark Copelovitch explores the root causes of modern banking crises in his new book with David Singer of MIT: Banks on the Brink: Global Capital, Securities Markets, and the Political Roots of Financial Crises (Cambridge University Press).

Copelovitch and Singer highlight the combined effects of two variables: foreign capital flows into a country and the relative prominence of securities markets in a country’s financial system. Foreign investment is the fuel for banks' potentially dangerous behavior, whereas banks are more likely to take on excessive risks when operating in a national financial system with large securities markets.

The book analyzes over 30 years of data and provides historical case studies of two key countries, Canada and Germany, each of which explores how political decisions in the 19th and early-20th centuries continue to affect financial stability today. The analyses in this book have crucial policy implications, identifying potential regulations and policies that can work to protect banking systems against future crises.

“Empirically, we find that systemic bank failures are more likely when large foreign capital inflows combine with a domestic financial system that has well-developed stock markets,” says Copelovitch. “Banks take on more risk in these environments, and this makes them more prone to collapse.”

Copelovitch joined the La Follette School and the Department of Political Science at the University of Wisconsin–Madison in 2006, after receiving his PhD in political science from Harvard University and serving as a postdoctoral fellow at Princeton University. His first book, The International Monetary Fund in the Global Economy: Banks, Bonds, and Bailouts, was published in 2010.

Copelovitch studies and teaches international political economy and international governance, with a focus on the politics of international trade and finance, as well as international organizations like the International Monetary Fund and the European Union. In 2017, he received a Vilas Associates Award to support his research on international economic shocks and domestic politics.

From 2013 to 2014, Copelovitch was a visiting scholar at the Hertie School of Governance in Berlin, Germany, when much of his research for the book began.

Singer is a professor of political science and head of the Department of Political Science at Massachusetts Institute for Technology (MIT). With a shared interest in the politics of international money and finance, Copelovitch and Singer began their research collaboration during graduate school at Harvard University.