Bankers’ Trust:
How Social Relations Avert Global Financial Collapse
Forthcoming at Cornell University Press. Expected July 2025.
Source: FRASER, Strong Papers, Strong’s correspondence with Norman, 1927
Some global financial crises are met with extensive international central bank cooperation to arrest emerging pressures; others are allowed to escalate. And when central banks cooperate, these arrangements are available to only some economies but not to others. Why is this? Standard explanations suggest that patterns of cooperation are determined by state power, interests, and resources, or facilitated by shared ideas and policy preferences. Bankers’ Trust challenges the status quo thinking to explain puzzling patterns of central bank cooperation, over time and between economies. I explain why and how central bank leaders have cooperated to arrest some financial crises but not others by deploying ad hoc and experimental bilateral arrangements such as currency swaps or credits, when the international monetary system is imperiled.
Bankers’ Trust is about the ‘who’ of global finance. I study the role of central bank leaders in managing global financial stability and crisis management. I detail the experimental and interpersonal origins of important crisis management tools, such as currency swap lines or bilateral credits, used by central banks to provide one another with (typically) dollars to arrest global crises. Central to these patterns of cooperation and crisis management are leaders in the major central banks, and their relationships (or lack thereof) of interpersonal trust, familiarity, and good will. Both within and between the periods considered in this book, I find that changes in leaders lead to changes in outcomes of crisis management. In short, in the management of international financial crises, individuals matter. I argue that interpersonal ties of trust (supported by personal familiarity, and good will) between central bank leaders facilitates bilateral cooperation, allowing leaders to avoid more costly unilateral or multilateral strategies. Differentiated personal ties influence the likelihood of accessing ad hoc, bilateral arrangements from partner central banks, and the terms of the arrangement.
Source: FRASER, Strong Papers, Strong to Inouye, 1927.
Using qualitative evidence from central bank archives and elite interviews, I offer a systematic comparative historical analysis of crisis management during system-threatening crises in the last century (roughly 1920-2020). I show why bilateral cooperation emerged in the interwar 1920s, to patch up the Bretton Woods system in the 1960s, and during the 2008 Global Financial Crisis, and explain the variation in access to money and financing for different central banks within these periods. I also explain why central bankers failed to cooperate during the early years of the Great Depression. This heightened power at the individual levels highlights the transnational power of unelected agents, their positions as arbiters of economic management and systemic importance outside national boundaries, and so, their contradictory positions within democratic governance frameworks. This book thus contributes to scholarly debates on international cooperation, leaders in world politics, and the politics of central banking.