What kinds of risk are there in the financial system, and how should financial regulators deal with them? Complex financial systems create credit and enable businesses, households, and states to share risks, but they are also prone to financial crises. Financial regulators seeking to achieve financial stability need to assess systemic risks in the financial system, and strike a balance between the goal of minimizing systemic risk and the goal of supporting credit creation. Philosophical work on the nature of risk and the ethics of risk imposition can help in defining the goals of financial regulation and assessing regulatory measures. We will explore how financial regulation works, think philosophically about risk and the morality of risk imposition, and apply these insights in a cases study on the stress testing of European banks.
Philosophy and Economics Programme, University of Bayreuth