Observations: Can ecological models explain global financial markets—and make them more stable?
“Excessive homogeneity within a financial system—all the banks doing the same thing—can minimize risk for each individual bank, but maximize the probability of the entire system collapsing,” Bank of England’s Andrew Haldane and Oxford University’s Zoology Department’s Robert May wrote in their new paper, which will be published in the January 20 issue of Nature (Scientific American is part of Nature Publishing Group). Thus even as banks themselves were pursuing internal diversity by adopting new financial tools, across the board “banks’ balance sheets and risk management systems became increasingly homogenous,” they wrote. And that similarity led to a vulnerable system.
Darwin could have been an economist.