Financial system regulation occurs within a multi-dimensional, multi-player, multi-level, complex adaptive system. Effective regulation of such systems requires “many model thinking,”1 through which regulators apply multiple, diverse frameworks to identify firm and system level risks. To ensure robustness,2 overseers must maintain an arsenal of potential responses commensurate to the broad array of potentially destabilizing risks faced by financial institutions and financial markets.3That same logic implies when the system produces new causes or dimensions of risk: regulatory attention — and the models that direct it — must be adaptive to afford new approaches to new risks.
All models are wrong, but some are useful.
GEORGE BOX (1974)
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