September, 2013

Antifragile Banking and Monetary Systems

  • Lawrence H. White

    Distinguished Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
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“Fragility” is the well-known property of being easily breakable, of failing under moderate stress. The opposite property is “antifragility,” a term coined by Nassim Nicholas Taleb (2012a) and the title of his recent book. In this article, Lawrence White considers how we might achieve antifragile banking and monetary systems. There are reforms that can marginally reduce fragility, but the author argues that to achieve antifragility will require a serious turn away from “one-practice-fits-all” centralized regulation and toward a free market’s mixture of innovation and strict discipline. In banking it will require an end not only to “too big to fail” bailouts of uninsured creditors and counterparties, but also to other forms of taxpayer-backed depositor and creditor guarantees.