It is my conviction that more than ever – and here I quote John Maynard Keynes – “madmen in authority…are distilling their frenzy from some academic scribbler from a few years back”.5 Economic theories, some of them dating back to the 1930s,6 have helped us to incorporate financial insights tractably into our models – think of the financial accelerator, the debt deflation channel, the credit channel, the modelling of collateral-constrained and creditconstrained agents, to name but a few.
What is needed, beyond formal agreements, is the confidential and frank exchange of all information among supervisors in order to identify problems early on, before they become threatening. In this era, we should also be vigilant to avoid abuses of the financial system for illegal activities, such as money laundering and terrorism financing.