Dynamic Financial System: Complexity, Fragility and Regulatory Principles

摘要: A financial system improves the allocation of real resources and enhances performance production economy, but these benefits are offset in part by risk distress associated deadweight loss resulting from bankruptcy costs. We argue that “tiers” claims increase complexity fragility network. In equilibrium, grows relative to economy as funds risks becomes more sophisticated tiered. Growth is limited a tiered, complex network need set aside additional capital sector grows. discuss several sources system. propose regulators should limit breaks do improve resiliency less on individual issues only symptoms fundamental problems advocate market based regulation which participants regulate each other, degree. order for this be feasible, must organized according three principles: trading transparency, competitive markets regulators, incentive alignment participants. Insofar regulatory approaches successful limiting fragility, requirements can reduced. Regulators keep mind tradeoff between regulation. With regard policy, let principles their guide adapting evolving rather than implementing narrowly conceived regulations quickly outmoded.