Regulating the financial system in a Minskian perspective
The financial system has been described alternatively as the plumbing of the economy or as the brain of the economy. Hyman Minsky argued that the basic role of the financial system was to support the capital development of the economy. It was a theory not of business cycles but of Schumpeterian economic development, of continuous, evolutionary change, driven by the generation of financial instability by the very mechanisms used by the financial system to support the capital development of the economic system. In a modern capitalist system the financial system finances the issue of the financial liabilities of the productive sector by providing its own liabilities. It means that a failure to meet a payment commitment by any institution in the financial system will have an impact on all the others in the system and ultimately depend on the behaviour of the liquidity provided by the banking system.