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After the Great ComplacenceFinancial Crisis and the Politics of Reform$
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Ewald Engelen, Ismail Ertürk, Julie Froud, Sukhdev Johal, Adam Leaver, Mick Moran, Adriana Nilsson, and Karel Williams

Print publication date: 2011

Print ISBN-13: 9780199589081

Published to Oxford Scholarship Online: January 2012

DOI: 10.1093/acprof:oso/9780199589081.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 28 October 2021

Banks Misunderstood

Banks Misunderstood

(p.97) Chapter 4 Banks Misunderstood
After the Great Complacence

Ewald Engelen

Ismail Ertürk

Julie Froud

Sukhdev Johal

Adam Leaver

Michael Moran

Adriana Nilsson

Karel Williams

Oxford University Press

This chapter is concerned with the question how banking could generate (unsustainable) returns of 15–25 per cent on equity before the crisis? Our answer is that in wholesale banking, small return per asset were beefed up through leverage while bonuses and profits were multiplied through the construction of ever more fragile latticeworks that were the result of bricolage and regulatory arbitrage. In retail banking, profitability was much less impressive and resulted mainly from cross selling and ramping up of transactions. These transformations were related to the emergence of a banking business model that was driven by shareholder value. A further aim of this chapter is to show how mainstream economics failed to understand banking and how the heterodox economists that got it right were right for the wrong reasons. The message is that finance and banking were not so much out of control as beyond control.

Keywords:   banking, mainstream economics, Hyman Minski, heterodox economics, bricolage, post-Keynesianism, leverage, shareholder value, banking business model

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