Survival constraint and financial regulation: a new Minskyian approach

Vol. 42 No. 1 (2022)

Jan-Mar / 2022
Published January 20, 2022
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Filho, Ernani Teixeira Torres, and Norberto Montani Martins. 2022. “Survival Constraint and Financial Regulation: A New Minskyian Approach”. Brazilian Journal of Political Economy 42 (1):88-104. https://doi.org/10.1590/0101-31572022-3179.

Survival constraint and financial regulation: a new Minskyian approach

Ernani Teixeira Torres Filho
Instituto de Economia da Universidade Federal do Rio de Janeiro – IE/UFRJ, Rio de Janeiro/RJ, Brasil.
Norberto Montani Martins
Instituto de Economia da Universidade Federal do Rio de Janeiro – IE/UFRJ, Rio de Janeiro/RJ, Brasil.
Brazilian Journal of Political Economy, Vol. 42 No. 1 (2022), Jan-Mar / 2022, Pages 88-104

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 to
suspend the enforcement of the penalty related to the survival constraint – bankruptcy – on
commercial banks. This suspension allowed relevant financial agents, in the pursuit of profits,
to make even riskier allocative decisions (moral hazard), increasing the level of financial
fragility. To mitigate this moral behavior, governments introduced financial regulation, fixing
the 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 evolution
of the financial markets or they will become unable to avoid financial instability.

JEL Classification: G00; G01; G18; G21; G28.


Keywords: Minsky survival constraint financial system financial regulation financial instability