The inevitability of instability

摘要

The frequency and severity of financial crises suggest that they are an inevitable part of capitalism. That does not mean policymakers should give up trying to limit the damage they cause. But it should make regulators careful when they try to stabilise the system. That is the shared conclusion of two thoughtful analyses: a paper* by Marcelo Prates of the Brazilian central bank and a speech** in New Delhi by Adair Turner, a former head of Britain's Financial Services Authority. A fundamental instability results from the mismatch between the assets banks hold (long-term loans) and their liabilities, in the form of short-term deposits. As Mr Prates comments, "No regulation will ever be able to change this reality, unless a law is passed, for instance, setting the reserve requirements at 100% and prohibiting leverage."