Survival constraint and financial regulation: a new Minskyian approach

Ernani Teixeira Torres Filho () and Norberto Montani Martins ()

Brazilian Journal of Political Economy, 2022, vol. 42, issue 1, 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 tosuspend the enforcement of the penalty related to the survival constraint – bankruptcy – oncommercial banks. This suspension allowed relevant financial agents, in the pursuit of profits,to make even riskier allocative decisions (moral hazard), increasing the level of financialfragility. To mitigate this moral behavior, governments introduced financial regulation, fixingthe 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 evolutionof 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 (search for similar items in EconPapers)
Date: 2022
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