The financial system is regulated to achieve a wide variety of purposes. However, the objective that distinguishes financial regulation from other kinds is that of safeguarding the economy against systemic risk. Concerns regarding systemic risk focus largely on banks, which traditionally have...

What distinguished financial institutions from other firms is the relatively small share of real assets on their balance sheets. Thus, the direct impact of financial institutions on the real economy is relatively minor. The indirect impact of financial markets and institutions on economic...