The macro-prudential actions of the FPC will not always be popular. But financial policy is not a popularity contest, for that way lies the time-consistency dilemma, the myopia trap. Partypooping accusations have come thick and fast through this crisis, some faster and thicker than others. Yet, though uncomfortable, these are a sign of the new system working, not failing. They are indications of the patient part of the brain regaining some control, of those attention deficits starting to narrow. A number of other countries have also now embarked on a macro-prudential mission, in both advanced and emerging countries, often in response to crisis. The Financial Stability Board has recently set out some design principles for these macro-prudential regimes.5 Interestingly, not all of these regimes have central banks at the helm (IMF (2011)). In a recent study, the IMF found that macro-prudential regimes which gave central banks an important role were associated with more timely use of macro-prudential instruments (Lim et al. (2013)). That underscores the importance of an appropriate institutional solution to the myopia trap. The institutional framework for macro-prudential policy may have further to travel internationally if this trap is to be avoided in future. Conclusion In The Rock, T S Eliot wrote: “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?” Today’s information-rich world may have come at the expense of knowledge and wisdom, including about the fat-tailed risks which may threaten social, economic and financial systems in the future.

In particular, I wish to argue that the twin forces of integration and information may have increased the severity of the tail risks facing global systems, as recently evidenced by the global financial crisis. Insuring against those rising tail risks may call for a fresh policy response – for example, a strengthening of public policy institutions. Integration and systemic risk Consider first the relationship between integration and systemic risk. It is well-known that deeper integration of a network does not have a straightforward impact on its stability. Integration can be a double-edged sword – and the greater the degree of integration, the sharper this sword. This is sometimes known as the “robust-yet-fragile” property of connected webs (Watts (2002)). The intuition is beguilingly simple. Within limits, connectivity acts as a shock-absorber, a riskspreader. Links in the system act as a mutual insurance device as risk is distributed and diversified away. That results in connected networks appearing “robust” to shocks. But when shocks are sufficiently large, the same connectivity serves as a shock-transmitter. Risksharing becomes risk-spreading. Links in the system act as a mutual incendiary device as risk is amplified across the wider web. Connected networks become “fragile”. In short, connected networks tend simultaneously to be stable and unstable, calm and turbulent, robust-yet-fragile. They sit atop a cliff-edge, on one side of which are the sunny uplands of stability, on the other the stormy lowlands of fragility. The more connected and integrated the system, the more precipitate this cliff-edge (Acemoglu et al.