The reorganisation of the financial system that appears to be taking place in the US does not seem to respect the basic principle that any reformulation of the regulatory system should limit the size and activities of financial institutions, and should be dictated by the ability of supervisors, regulators etc. to understand the institutions’ operations. Instead, it seems to support larger financial institutions that are created by merging weak institutions with stronger ones. If the present trend of bank mergers continues, the resolution of the crisis, as Minsky always predicted, will lay the basis for another financial crisis.

 
October 30, 2008.

This is a Policy note of The Levy Economics Institute of Bard College, Annandale-on-Hudson, New York 12504-5000.