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Financial crises are not complicated, and many claim to know why they happen and how to prevent them. Why then do they happen with such alarming frequency? This column argues that a key reason is failures in regulation, and proposes that the financial authorities instead adopt a fundamental concept from finance – diversification. By doing so, we can build a more resilient system that not only better absorbs shocks but is also more efficient and less susceptible to crises than the current frameworks.
