Introduction

In many countries bank failures are largely unheard of and the idea of a threat to the financial system seems remote. Even in the United Kingdom, where names like Barings and BCCI spring readily to mind, there is no expectation of any serious threat to the main banks. While most retail deposits are insured, depositors do not rely on the insurance in order to feel their deposits are safe. Although banking inherently involves taking risks, those risks have been thought relatively minor, especially across large institutions. In other countries, such as the United States, bank failures are more common and depositors do have an eye to insurance, especially since the Savings and Loan difficulties in the 1980s. Even large problems with individual banks can appear manageable,1 as with Credit Lyonnais, for example. Banking crises are associated with the developing world. In this environment it is easy for complacency to set in. Both supervisors and the supervised can convince themselves that existing safeguards are adequate, rather than accepting that they have been lucky not to face more exacting shocks.