The recent Nobel Prize in Economics went to three researchers Ben S. Bernanke, Douglas W. Diamond, Philip H. Dybvig for their work in explaining how banks play a leading role in financial crises. Most of the conclusions they discussed are quite common knowledge today, but some points are still worth revisiting for quite a number of reasons.

One paramount reason is that a banking collapse almost inevitably leads to a financial crisis. We saw that during the great depression of the 1920s as well as the 2008 banking crises that inevitably led to the birth of crypto. So much has changed since 2008, yet the banks continue to play a big role in determining regional and global economic stability.

Their insights based on a ton of research works performed in the 1980s about why banks exists and how they can be shielded from shocks are the basis for most of the modern day banking regulation we have today. It is important to note that their conclusions did lead to some important conclusions about the banking/finance sector, but never really addressed some core challenges in the the overall system.

Firstly, the overly centralized nature of the traditional banking system made it too powerful and too important that any kind of failure would be a disaster of epic proportions. It meant that regulators would sometimes need to intervene in the sector with measures that dealt harshly to consumers. In a nutshell, people were soon quick to realize how vulnerable their funds were in a place that promised safety.

Regulations have always been the bane of the finance industry. Due to its sensitive nature, a substantial part of it is justified, such as attempts to prevent the illicit flow of funds or profit through illicit means. However, excess regulation had also been the reason why the banking system could not necessarily evolve to what we are beginning to witness.

The coming of crypto has created a system that is crisis proof in the sense that crisis in one sub sector would not have far reaching consequences on the entire economy, just a select few or group of individuals. The idea of everyone being a bank has created an avenue for the space to mature and curb underhanded practices such as insider activity within the system.

Conclusion

Perhaps development in the crypto space will save us from hasty, emergency interventions and another economic crisis in the spate of a bank collapse.