They resort to leverage in their operations, i.e., their liabilities are substantially larger than their capital and they are generally transformers of maturities, the maturities of liabilities operations being shorter than those of assets operations. Some of these traits might be of special relevance to explain the vulnerability of financial institutions, and especially banks, to a crisis, as well as the possibility of contagion that, once a crisis has begun, can lead to systemic risk.ĦAlong with the monetary authority, banking institutions are participants of the monetary system, that is to say, receivers and originators of cash deposits, which are fully liquid instruments.

This can be explained by the inherent characteristics of transactions performed in these markets. Banking Regulation and the Basel Regulatory RegimeĥAs previously indicated, financial markets are subject to more developed means of regulation and supervision than other segments of the economy. In the concluding remarks we will discuss how distant the rationale of the Basel Accords lies from the Minskyan point of view. The fourth section spells out the main ideas of Minsky’s Financial Instability Hypothesis as they might be appropriately “adjusted” to finance-led capitalism. Thus, according to Boyer (2004), one particular aspect of regulation theory is that it is able to account simultaneously for the properties of a regulation mode and for the endogenous factor that can destabilize it.ĤIn order to carry out this discussion, the present text is structured as follows: the next section presents the central elements of contemporary banking regulation, and the focus of the third section will be specifically devoted to the response given by current regulators to the crisis. It appears to us that the Minskyan approach and the approach of regulation theory share many fundamental points. This will be done from the perspective of the theoretical propositions of Hyman Minsky, who proposes that financial cycles and crises are endogenously generated. To place this discussion in its proper context, it is necessary to take a step back and analyze how financial crises are generated.

The present crisis stimulates discussion regarding the very foundations of the current framework of financial regulation. It is important to note that financial regulation is here understood as constituting a central element of the monetary regime 2, which is in turn regarded as one of the main institutions of capitalist economy by regulation theory.

2 According to Boyer (2004) a monetary regime is defined by the set of rules intended to manage the (.)ģIn the light of the current crisis, the purpose of this paper is to present a discussion of the financial, and especially banking, regulation from a Minskyan perspective.

Capitalism ii additional scenarios