TOULOUSE, France — If history punishes those who fail to learn from it, financial history also punishes those who learn from it too enthusiastically.
Time and again, financial crises have reflected the weaknesses of regulatory systems founded on the lessons learned from previous crises. Today's crisis is no exception. The postwar system of financial regulation was founded on three supposed lessons from the 1930s:
First, we thought that the main reason why banks fail is that depositors panic — not that the main reason depositors panic is that banks are in danger of failing. There is a grain of truth in the view that banks fail because depositors panic. But it is a small grain, and one on which the average uninsured depositor would be ill-advised to rely.