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Survival constraint and financial regulation: a new Minskyian approach

Author

Listed:
  • Ernani Teixeira Torres Filho
  • Norberto Montani Martins

Abstract

This article points out the importance of Minsky’s concept of ’survival constraint’in the genesis of financial regulation. The risk of a systemic collapse led the States tosuspend the enforcement of the penalty related to the survival constraint – bankruptcy – oncommercial banks. This suspension allowed relevant financial agents, in the pursuit of profits,to make even riskier allocative decisions (moral hazard), increasing the level of financialfragility. To mitigate this moral behavior, governments introduced financial regulation, fixingthe limits that should emulate the behavior of these agents if they were still subject to the survival constraint. These rules must be permanently revisited to keep up with the evolutionof the financial markets or they will become unable to avoid financial instability. JEL Classification: G00; G01; G18; G21; G28.

Suggested Citation

  • Ernani Teixeira Torres Filho & Norberto Montani Martins, 2022. "Survival constraint and financial regulation: a new Minskyian approach," Brazilian Journal of Political Economy, Center of Political Economy, vol. 42(1), pages 88-104.
    • Handle: RePEc:ekm:repojs:v:42:y:2022:i:1:p:88-104:id:2297
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    More about this item

    Keywords

    Minsky; survival constraint; financial system; financial regulation; financial instability;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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