Systemically Important Technology

Abstract

The debate about how to address dangers in the increasingly important technology sector misses an essential dimension. It is the same oversight that financial regulators committed prior to the Global Financial Crisis: under-appreciating systemic risk. Fortunately, the responses those regulators eventually developed provide a template to avoid a similar disaster in tech.

The financial regulation paradigm for systemically important institutions can usefully be applied our current technological environment in a way that could promote stability and resilience. In particular, we propose two steps. First, technology regulators should designate firms of systemic importance, using a set of factors modeled on those established under Dodd-Frank for financial institutions. Second, we propose that technology regulators join a council that meets regularly to discuss and identify issues of systemic risk in technology, along the lines of the Financial Stability Oversight Council.

Our proposal offers a number of advantages over the current system. It consolidates a balkanized regulatory landscape and rationalizes a regulatory mission. It offers a different perspective on technology regulation, one that addresses real problems that have—so far—bedeviled both important technology firms and their government minders. It takes the best features of a successful resilience regime and adapts them to a critical part of the economy, in a way that should appeal across the political spectrum.

Keywords: systemic risk, financial stability, Big Tech