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Book cover: Research in the Sociology of Organizations

Research in the Sociology of Organizations

ISSN: 0733-558X
Series editor(s): Professor Michael Lounsbury

Subject Area: Organization Studies

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Regulating or redesigning finance? Market architectures, normal accidents, and dilemmas of regulatory reform


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Title:Regulating or redesigning finance? Market architectures, normal accidents, and dilemmas of regulatory reform
Author(s):Marc Schneiberg, Tim Bartley
Volume:30 Editor(s): Michael Lounsbury, Paul M. Hirsch ISBN: 978-0-85724-205-1 eISBN: 978-0-85724-206-8
Citation:Marc Schneiberg, Tim Bartley (2010), Regulating or redesigning finance? Market architectures, normal accidents, and dilemmas of regulatory reform, in Michael Lounsbury, Paul M. Hirsch (ed.) Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part A (Research in the Sociology of Organizations, Volume 30), Emerald Group Publishing Limited, pp.281-307
DOI:10.1108/S0733-558X(2010)000030A013 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Article type:Chapter Item
Abstract:Existing financial market architectures combine astonishing complexity with tight coupling, making them prone to systemic crises or “normal accidents” and placing extraordinary demands on regulation. In light of this, we consider two routes for regulatory reform. A “high modernist” possibility attempts to regulate financial markets as currently designed. This path means not only increasing the capacities of regulators and rating agencies to estimate complex risks, but also designing systems that can manage more radical forms of uncertainty through learning and bargaining. We consider a series of proposals and challenges that lie down this path. An alternative possibility takes seriously the notion that regulation constitutes markets and uses the current crisis to rethink market architectures themselves, especially their complexity and tight coupling. Preventing failures from spiraling into systemic crises may involve using regulation first, to simplify financial products and their interconnectedness, and second, to create redundancies or hedge bets through specialized financial subsectors organized around alternative principles, including recapitalized community banks, credit unions, mutuals, and public financial institutions.

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