Small Enough To Fail: A Systems Approach To Financial Systems Reform

Abstract

The financial crises since 2007 have inspired many suggestions for reform. In order to evaluate proposed changes to financial markets and their regulation, we need to agree on the goals and properties of the financial system which we are trying to create as much as come up with ideas for reform. This paper looks at how design principles might inform financial systems design. It presents a sample set of principles based on a structure that distinguishes Insured Banks from Other Financial Institutions.

Keywords: systems theory, financial regulation, banking reform, utility banking, narrow banking, insured banking, diversity

JEL Classification: G00