Banks are ‘inherently unstable’, BIS paper finds

The Bank for International Settlements, Basel
Photo: Ulrich Roth

Instability is the logical result of all the main roles banks play in an economy, research published by the Bank for International Settlements finds.

In the working paper, Chao Gu, Cyril Monnet, Ed Nosal and Randall Wright note even the “staunchest proponents” of laissez-faire economic policies, such as Milton Friedman, advocated banking regulation as a necessary part of monetary stability.

The authors say they started out agnostic to the possibility banks are “inherently unstable”. They note

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