A Review of Global Banking Regulation Under an Assumption of Complexity
Posted: 26 Nov 2018
Date Written: October 31, 2018
The global banking system can be shown to be a Complex Adaptive System (CAS) that exhibits phase transitions from time to time. These phase transitions can result in significant financial losses to the community that we estimate to be much more significant than losses occurring during “business as usual” periods. In this paper we argue that the significant losses arising from phase transitions in the banking system requires a very different approach to regulation than the current Basel regime, and that there is a need to transition the Basel regime from a Federation of Systems (FoS) to a System of Systems (SoS). We demonstrate that the World Health Organisation’s (WHO) recent management system for pandemics is ideally suited for management of the global banking system and would have greater potential to control the phase transition losses than the current Basel system.
Keywords: Financial Complexity, Banking Regulation, Global Financial Crisis, Phase Transition, Complex Adaptive System, System of Systems, Federation of Systems
JEL Classification: G1, G2, H3
Suggested Citation: Suggested Citation