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In the financial system we have today, with less risk concentrated in banks, the probability of systemic financial crises may be lower than in traditional bank-centered financial systems.

A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

A single agency responsible for systemic risk would be accountable in a way that no regulator was in the run-up to the 2008 crisis. With access to all necessary information to monitor the markets, this regulator would have a better chance of identifying and limiting the impact of future speculative bubbles.

You want banks to take some risk, but intelligent risk.

You shouldn't be trying to create a system where no bank fails, but you should be creating one that catches a bank and allows it to fail without impacting the financial markets.

The Obama administration's plan is to have the Federal Reserve regulate banks that might pose a 'systemic risk' if they were to fail.

It is probably the case that some regulation of financing will make crises less likely, and I would say higher capital requirements are an almost fail-safe way to make banks safer. But there are a lot of other things that may not be doing that, and so we need to be careful about sort of, like, rushing to one conclusion or another.

What the banking system needs is creditors who monitor risk and cut their exposure when that risk is too high. Unlike regulators, creditors and counterparties know the details of a deal and have their own money on the line.

The failure of one regional bank, assuming it is following a traditional model, will not threaten the entire system.

Banking is a very treacherous business because you don't realize it is risky until it is too late. It is like calm waters that deliver huge storms.