The reforms made to financial regulation regimes around the world since the 2007–2009 crisis have been simultaneously even and uneven — even, in so far as there is a shared core of reforms to banking and some capital markets; uneven, in the extraordinary diversity in the architecture and purposes of national regimes to preserve financial stability. Whereas a few countries have established high-level financial stability authorities with powers over the whole of the system, most have retained a patchwork of sectoral regulators, many of which lack an explicit mandate for stability. There is also a degree of discord in the orientation of researchers and policy makers.

This essay argues that financial system stability is best addressed as a common-resource problem plagued by hidden actions in the form of endemic regulatory arbitrage and innovation. It proposes a benchmark structure for a financial stability regime, centred on a “standard of resilience” to be applied on a functional basis across the system. This would, however, still leave a continuing problem of “missing regimes” for macroeconomic balance and national balance sheet fragilities, leaving the international monetary and financial system prone to vulnerability. Addressing those gaps would necessitate grappling with the difficult question of which powers can and cannot decently be delegated to unelected technocrats in central banks and regulators. They are, at root, problems of political economy, not just of technical economics.