Addressing Current Proposals to Monitor Systemic Risk

The government's current approach to dealing with systemic risk - implicit and explicit guarantees and case-by-case bailout decisions - needs to change. A better job can be done to mitigate systemic risk, but solutions must be based on well-informed estimates of vulnerabilities. Prudential and effective regulation in a polycentric system requires many different centers of specialized regulatory activity that can identify and adapt to change in asset holding and financials services and facilitate coordination based on common interest and general principles rather than common function and specific rules.