Restricted accessMeeting reportFirst published online 2025-12
The Institutional Evolution of the US Financial System 1945–2023: Policy Implications of the Long-Wave Financial Cycle and Thwarting System Asymmetries
This article examines institutional and structural changes in the US financial system that contributed to the 2008 Global Financial Crisis, suggesting a policy perspective for effective thwarting mechanisms. Building on Ferri and Minsky’s 1992 work, we explore how dynamic interactions between financial intermediaries and regulatory systems created systemic vulnerabilities. As thwarting mechanisms erode, they become asymmetric—curbing downturns but failing to deter excessive risk-taking. These asymmetries, alongside changes in expectations and risk appetite, drive financial activity outside regulatory oversight, exacerbating instability. The article emphasizes the need for adaptive, evolving regulatory frameworks to contain endogenous tendencies toward instability. While post-crisis reforms improved stability by addressing leverage, capital, and shadow banking, static aspects of the framework risk future erosion, as agent behavior adapts to extended periods of stability.
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