Financial Innovation and System Design
PSL Quarterly Review, Vol. 63, No. 253, pp. 129-142, 2010
14 Pages Posted: 22 Apr 2011 Last revised: 21 May 2012
Date Written: April 15, 2011
The official regulatory responses to the current crisis do not alter the laissez faire approach to the production and allocation of financial risks which characterises the existing regulatory framework. The stated goal remains that of maintaining the freedom for the private sector to introduce financial innovations, whose nature is consistent with the system design pursued by the official authorities. I argue that adopting a systemic perspective the crucial point is not just the nature of innovations but their quantitative dimension and dynamics, which are responsible for the endogenous creation of financial fragility. The new official proposals do not appear capable of changing this picture. A radical revision of the regulatory approach is necessary, of which an outline is presented.
Keywords: Financial Crisis, Rules, Banking System
JEL Classification: G18, G20, G28
Suggested Citation: Suggested Citation