Minsky at Basel: A Global Cap to Build an Effective Postcrisis Banking Supervision Framework

Levy Economics Institute, Working Papers Series, No. 875

85 Pages Posted: 28 Oct 2016

See all articles by Giuseppe Mastromatteo

Giuseppe Mastromatteo

Catholic University of the Sacred Heart of Milan

Lorenzo Esposito

Bank of Italy

Date Written: September 30, 2016

Abstract

The global financial crisis shattered the conventional wisdom about how financial markets work and how to regulate them. Authorities intervened to stop the panic — short term pragmatism that spoke volumes about the robustness of mainstream economics. However, their very success in taming the collapse reduced efforts to radically change the “big bank” business model and lessened the possibility of serious banking reform — meaning that a strong and possibly even bigger financial crisis is inevitable in the future. We think an overall alternative is needed and at hand: Minsky’s theories on investment, financial stability, the growing weight of the financial sector, and the role of the state. Building on this legacy, it is possible to analyze which aspects of the post-2008 reforms actually work. In this respect, we argue that the only effective solution is to impose a global cap on the absolute size of banks.

Keywords: Banking Regulation, Financial Stability, Minsky, Basel 3

JEL Classification: E12, G01, G28

Suggested Citation

Mastromatteo, Giuseppe and Esposito, Lorenzo, Minsky at Basel: A Global Cap to Build an Effective Postcrisis Banking Supervision Framework (September 30, 2016). Levy Economics Institute, Working Papers Series, No. 875, Available at SSRN: https://ssrn.com/abstract=2845995 or http://dx.doi.org/10.2139/ssrn.2845995

Giuseppe Mastromatteo (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Lorenzo Esposito

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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