Until policymakers accept that financial regulation shifts risk rather than eliminates it, we will keep cycling through crisis, overreaction, unintended consequences, and the next crisis.

Recently, two Federal Reserve governors delivered speeches with interesting differences. Michael Barr warned against weakening bank supervision, citing “growing pressures to scale back examiner coverage, to dilute ratings systems” that could lead to a crisis. Stephen Miran countered that “regulators went too far after the 2008 financial crisis, creating many rules that raised the cost of credit” and pushed activities into unregulated sectors.

Both governors make valid observations about their respective concerns. Yet neither addresses a more fundamental problem: the regulatory cycle itself may be the primary source of financial instability. Rather than preventing crises, financial regulation tends to shift risks to new areas, setting the stage for different—not fewer—failures.

• The Regulatory Ratchet
• Managing Risk, Not Preventing It
• Breaking the Cycle

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