The achievement of financial stability is one of the most pressing issues today. This timely and innovative book provides an analytical framework to assess financial (in)stability as an equilibrium phenomenon compatible with the orderly functioning of a modern market economy.

The maintenance of financial stability is a key objective of monetary policy, but the record of regulators in achieving this has been lamentable in recent years. This failure has been matched by an equivalent inability to establish an appropriate theoretical basis for financial regulation. In...