Strong Enforcement of Simple Regulations

“Instead of exhausting ourselves drawing up hopelessly complex codes of ‘macro-prudential’ or ‘counter-cyclical’ regulation, let us go back to Bagehot’s world, where individual prudence – rather than mere compliance  was the advisable course, precisely because the authorities were powerful and the crucial rules unwritten.

I began this chapter by contradicting the proponents of stricter regulation, only to end it by advocating the exemplary incarceration of bad bankers. I hope it is now clear why these positions are not contradictory but complementary. A complex financial world will be made less fragile only by simplicity of regulation and strength of enforcement.”