Banking, Technology, and Instability

2026

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This paper examines the growing instability in the banking sector driven by the rise of "Banking-as-a-Service" (BaaS) models, exploring its implications for financial stability and proposing policy reforms.

* **Business Model Instability:** Analyzes how the inversion of traditional outsourcing in BaaS creates new risks and challenges for regulatory frameworks.
* **Expectations Instability:** Investigates how BaaS can confuse customer expectations regarding deposit insurance and financial safety nets, potentially leading to runs.
* **Policy Reforms:** Proposes solutions ranging from recordkeeping enhancements and liability rules to fundamental changes in bank regulation and the financial safety net.

Tags: Banking, Technology, Fintech, Regulation, Financial Stability

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