Let me begin by saying that it’s a pleasure for me to be among community bankers. I used to be the banking commissioner in Maryland and will always be grateful to the community bankers there who were crucial to informing my views on effective bank regulation.
In particular in financial markets, where many agents interact at high frequency, it is difficult for economic agents to get together and negotiate a contractual solution to the externality problem, as Nobel Laureate Ronald Coase has suggested in other contexts.2 In the heat of a financial crisis this will undoubtedly be impossible.