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How much it does so is, however, a matter of degree. If regulatory constraints act as control bounds on structurally defective business models, that strengthens the financial system, even if (indeed, precisely because) it constrains diversity. Empirical evidence suggests this latter effect dominated during the recent crisis. (ii)  Discretion versus Rules  The new architecture has introduced measures which are likely to make for a greater degree of supervisory or policymaker discretion in the setting of regulatory standards. This arises, most obviously, in the application of supervisory judgement to certain risks that banks face, to stress-testing and to macroprudential policy. Multiple regulatory rules have been augmented with considerable supervisory discretion. Viewed in the round, this new regulatory regime could reasonably be described as “constrained discretion”. Regulatory rules provide the constraint within which policymakers exercise discretion. In its broad contours, this new regulatory framework has some similarities with the prevailing monetary policy framework in a number of countries (Bernanke and Mishkin (1997)). These regimes have been found to be an effective way of balancing the pre-commitment necessary to avoid policy time-consistency problems with the flexibility necessary to respond to unforeseen circumstances (Arestis and Mihailov (2009), Borio (2010)). Equally, as in the monetary policy sphere, there is a question about whether this new regulatory regime strikes the right balance between regulatory rules and the degree of discretion with which they are operated.