by Lawrence H. White
September 17, 2013
“Fragility” is the well-known property of being easily breakable, of failing under moderate stress. The opposite property is “antifragility,” a term coined by Nassim Nicholas Taleb and defined as the property exhibited by “things that gain strength from stressors and get stronger from failure, like evolution.” Here I consider how we might achieve antifragile banking and monetary systems. There are reforms that can marginally reduce fragility, but I will argue that to achieve antifragility will require a serious turn away from “one-practice-fits-all” centralized regulation and toward a free market’s mixture of innovation and strict discipline. In banking it will require an end not only to “too big to fail” bailouts of uninsured creditors and counterparties, but also to other forms of taxpayer-backed depositor and creditor guarantees.