Chapter 1: Understanding How Banks Operate

In the 1930s, economic uncertainty among the public led to huge runs on US banks. The federal government responded by creating deposit insurance and asset regulations. As more and more crises occurred, bailouts and further regulations have become commonplace.

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Additional resources:

Watch “How Government Policy Inflates Health Care Costs: The Curse of Cross-Subsidies,” with John Cochrane on PolicyEd. Available here:

Watch “Does Government Debt Matter Anymore?” with John Cochrane on PolicyEd. Available here:

Read “Why Hasn’t the Fed Done More to Fight Inflation?” by John Cochrane via Chicago Booth Review. Available here:

Read “The End of an Economic Illusion,” by John Cochrane via Project Syndicate. Available here:

Read “Will Inflation Persist?” by John Cochrane via the Grumpy Economist. Available here:

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LEARN MORE ABOUT: Bank Failures

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Chapter 1 of the book “Financial Regulation: From Bank Runs to Climate Change,” which is titled “LFHSPBC,” dives into the complex world of financial regulation and the various factors that have shaped it over the years. Authored by an expert in the field, this chapter offers a comprehensive overview of how financial regulation has evolved from addressing bank runs to addressing the pressing issue of climate change.

The chapter starts by delving into the historical context of financial regulation, with a particular focus on the phenomenon of bank runs. The author provides a detailed analysis of how bank runs have historically led to financial crises and the measures that have been implemented to prevent them. This historical perspective sets the stage for the discussion of contemporary financial regulation and the challenges it faces in the modern era.

One of the key highlights of the chapter is the exploration of regulatory frameworks and their effectiveness in addressing the evolving nature of financial risks. The author examines the role of regulatory bodies and their efforts to adapt to the changing landscape of financial markets. In particular, the chapter sheds light on the regulatory response to the growing concern of climate change and its impact on the financial sector.

The chapter also delves into the concept of LFHSPBC (Lender-of-Last-First-Hope-Speaker-Protection-Ban-Coverage), a framework that has gained significance in the context of financial regulation. The author provides an in-depth analysis of LFHSPBC and its implications for financial stability. This discussion serves as a valuable resource for readers seeking to understand the intricacies of contemporary financial regulation and the tools being employed to mitigate systemic risks.

Overall, Chapter 1 of “Financial Regulation: From Bank Runs to Climate Change” provides a comprehensive overview of the evolution of financial regulation and its response to emerging challenges. The author’s expertise and insightful analysis make this chapter an essential read for anyone interested in understanding the complexities of financial regulation in today’s global economy. With its thorough exploration of historical context, contemporary frameworks, and future challenges, this chapter serves as a valuable resource for academics, policymakers, and practitioners in the field of finance and economics.