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A review of global banking regulation under an assumption of complexity

Published online by Cambridge University Press:  30 October 2018

John Evans  and
Yifei Li
John Evans*
Affiliation:
Centre for Analysis of Complex Financial Systems, Summer Hill 2130, Australia
Yifei Li
Affiliation:
Sydney Business School, University of Wollongong, 1 Macquarie Place, Sydney 2000, Australia
*
*Correspondence to: John Evans, Centre for Analysis of Complex Financial Systems, PO Box 363, Summer Hill 2130, Australia. E-mail: jevans@pgeaus.onmicrosoft.com
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Abstract

The global banking system can be shown to be a Complex Adaptive System that exhibits phase transitions from time to time. These phase transitions can result in significant financial losses to the community that we estimate to be much more significant than losses occurring during “business as usual” periods. In this paper, we argue that the significant losses arising from phase transitions in the banking system requires a very different approach to regulation than the current Basel regime, and that there is a need to transition the Basel regime from a Federation of Systems to a System of Systems. We demonstrate that the World Health Organisation’s recent management system for pandemics is ideally suited for management of the global banking system and would have greater potential to control the phase transition losses than the current Basel system.

Keywords

Financial complexityBanking regulationComplex Adaptive SystemSystem of systemsFederation of systems

JEL classification

G1: General Financial Markets G2: Financial Institutions and Services H3: Fiscal Policies and Behavior of Economic Agents
Type
Paper
Information
Annals of Actuarial Science , Volume 13 , Issue 2 , September 2019 , pp. 320 - 333
Copyright
© Institute and Faculty of Actuaries 2018 

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