Survival constraint and financial regulation: a new Minskyian approach
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