The New Financial Stability Regulation


Financial stability has been one of the more technical and controversial aspects of the post-Financial Crisis regulatory debate. Although much scholarly attention has been devoted to descriptive accounts of particular sources of systemic risk, less attention has been given to developing a normative account of financial stability regulation derived from economic or finance theory. To join that debate, this Article proposes a principles-based framework for identifying the essential functional capabilities and accountability structures of financial stability regulation. This framework is derived from post-Keynesian economic theories which attribute the endogenous instability of the financial system to the fundamental uncertainty associated with the financial contracting process. When viewed against this framework, the U.S. financial stability architecture deserves three cheers for advancing important functional capabilities but critical skepticism of its formal accountability structures. For the specialist, this analysis highlights both the institutional design imperatives of financial stability exceptionalism and the dangers of relying on extant financial regulatory paradigms as models for systemic risk regulation. For the non-specialist, adopting a disequilibrium theory of economic performance raises broader questions relating to the efficacy of market discipline, the coherence of administrative delegation and the normative content of economic regulation more generally.


Stanford University Stanford, California
  • Schan Duff, The New Financial Stability Regulation, vol 23 Stanford Journal of Law, Business & Finance 46 (2018).
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