ol. The ever-present tension in the United States between government policy and banking policy ensured the banking industry's objectivity. This paper undertakes an analysis of the banking industry in the United States from the mid 18th through mid 19th century to understand the likely evolution of the banking industry in Europe's developing economies in the 20th century.
European Economies and the Evolution of the U.S. Banking Industry
Bulgaria has experienced the failure of approximately a dozen banks through the first part of the 1990s (The Economist, 1997, p. S7). Hungary's government is currently considering several forms of aid, including allowing banks to make tax-deductible provisions for bad debts and more radical ideas such as guaranteeing bad debts and providing subordinated loans to boost banks' capital (The Economist, 1991. p. 79). However, The Economist points out that capital alone will not make Eastern Europe's banks viable. Their fundamental cause for concern is that most remain owned by their national governments and managed by bureaucrats who know nothing about assessing credit, listening to customers or other basics (The Economist, 1991, p. 79).
The Economist argues that the primary cause of the crisis in Eastern Europe was the banks' decision to allow financiers with little experience and even less capital to set up their own banks. The banks were then ruined by weak supervision, inadequate rules governing accounting and bankruptcy, poor economic management and reckless lending (The Economist, 1997, p. S7). However, The Economist maintains that four potential dangers are paramount for banks in emerging markets: macroeconomic volatility, connected lending, political involvement, and financial liberalization (The Economist, 1997, p. S7).
Macroeconomic volatility depends upon the link between the health of emerging banking systems and the health of the economies in which they operate. David Carse, deputy hea...