Too Contagious to Fail: Why Bankers Should Think More Like Epidemiologists

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What could the study of infectious disease teach us about the 2008 financial crisis? Plenty, argue University of Oxford ecologist Robert M. May and Andrew G. Haldane, the Bank of England’s executive director for financial stability. In a recent paper they compared big banks such as Lehman Brothers with what epidemiologists call “superspreaders”—infected people or organisms who endanger entire networks through their web of connections. 

To prevent another meltdown, financial regulators may need to focus on the health of networks, not just individual banks, May notes. In focusing on interconnections, bankers would be following the lead of designers of personal computers and utility grids; all have worked to make their systems modular, creating firewalls to prevent infection of the whole network by a single element in it. Says Philip H. Dybvig, an economist at Washington University in St. Louis: “What they’re proposing is really a version of Glass-Steagall,” an act that separated investment banks from commercial ones, revoked in 1999. Are bankers listening? May cites the U.S.’s recently proposed Volcker rule—which suggested quarantining risky hedge fund and private equity activity from other banking activities—as a sign that they may be thinking more like epidemiologists.

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