--- title: "Meaning & Key Takeaway of: For market discipline to constrain risk…" description: "\"For market discipline to constrain risk effectively, financial institutions must be allowed to fail. Under optimal financial regulatory and financial s..." image: "https://sms4smile.com/quotes/i/193/henry-paulson-2282_constrain_for-market-discipline-to-constrain-risk_1771401.jpg" --- # For market discipline to constrain risk effectively… ![“For market discipline to constrain risk effectively, financial institutions must be allowed to fail. Under optimal financial regulatory and financial system infrastructures, such a failure would not threaten the overall system.” quote by Henry Paulson](https://sms4smile.com/quotes/i/193/henry-paulson-2282_constrain_for-market-discipline-to-constrain-risk_1771401.jpg) [Download](https://sms4smile.com/quotes/i/193/henry-paulson-2282_constrain_for-market-discipline-to-constrain-risk_1771401.jpg) [Open image](https://sms4smile.com/quotes/i/193/henry-paulson-2282_constrain_for-market-discipline-to-constrain-risk_1771401.jpg) > “For market discipline to constrain risk effectively, financial institutions must be allowed to fail. Under optimal financial regulatory and financial system infrastructures, such a failure would not threaten the overall system.” [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) ## About This Quote This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation. Effective market discipline requires allowing institutions to fail without threatening systemic stability. **In simple terms:** Let failing firms fail, but protect the whole system. Key Takeaway Design safeguards for orderly failures. Themes regulation risk systemic stability Mood cautionary analytical Type policy economic. When to use this quote - banking crisis - policy reform - stress testing Key Concepts moral hazard too big to fail financial architecture Questions to Reflect On - How can we balance accountability with stability? - What safeguards prevent contagion? A Different Perspective Failure can cause short‑term panic and political resistance. ★ ★ ★ ★ ★ No ratings yet [Constrain](https://sms4smile.com/quotes/about/constrain/) [Constrain Risk](https://sms4smile.com/quotes/about/constrain-risk-1783103/) [Customer](https://sms4smile.com/quotes/about/customer/) [Discipline](https://sms4smile.com/quotes/about/discipline/) [Failing](https://sms4smile.com/quotes/about/failing/) [Failure](https://sms4smile.com/quotes/about/failure/) [Financial](https://sms4smile.com/quotes/about/financial/) [Financial institutions](https://sms4smile.com/quotes/about/financial-institutions/) [Financial Regulatory](https://sms4smile.com/quotes/about/financial-regulatory-1783102/) [Financial system](https://sms4smile.com/quotes/about/financial-system/) [Infrastructure](https://sms4smile.com/quotes/about/infrastructure/) [Institutions](https://sms4smile.com/quotes/about/institutions/) [Market](https://sms4smile.com/quotes/about/market/) [Market Discipline](https://sms4smile.com/quotes/about/market-discipline-627898/) [Money](https://sms4smile.com/quotes/about/money/) [Optimal](https://sms4smile.com/quotes/about/optimal/) [Regulatory Financial](https://sms4smile.com/quotes/about/regulatory-financial-1783104/) [Risk](https://sms4smile.com/quotes/about/risk/) [System](https://sms4smile.com/quotes/about/system/) ## Related quotes > [If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position…](https://sms4smile.com/quotes/hyman-minsky/if-the-authorities-constrain-banks-and-are-aware-of-the-activities-of/) [Hyman Minsky](https://sms4smile.com/quotes/author/hyman-minsky/) > [In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the…](https://sms4smile.com/quotes/hyman-minsky/in-a-world-of-businessmen-and-financial-intermediaries-who/) [Hyman Minsky](https://sms4smile.com/quotes/author/hyman-minsky/) > [This country, of course, needs fundamental reform of our financial regulatory system, as I, and many other financial institution executives, have publicly advocated for…](https://sms4smile.com/quotes/stephen-a-schwarzman/this-country-of-course-needs-fundamental-reform-of-our-financial/) [Stephen A. Schwarzman](https://sms4smile.com/quotes/author/stephen-a-schwarzman/) > [Financial regulatory reform is one of the top legislative priorities of the Obama Administration.](https://sms4smile.com/quotes/valerie-jarrett/financial-regulatory-reform-is-one-of-the-top-legislative-priorities/) [Valerie Jarrett](https://sms4smile.com/quotes/author/valerie-jarrett/) > [The Federal Reserve has always recognized the importance of allowing markets to work, and government oversight of financial firms will never be fully effective…](https://sms4smile.com/quotes/ben-bernanke/the-federal-reserve-has-always-recognized-the-importance-of-allowing/) [Ben Bernanke](https://sms4smile.com/quotes/author/ben-bernanke/) > [The best restraint is old-fashioned market discipline, in which financial traders know that they, personally, will lose a ton of money if they take…](https://sms4smile.com/quotes/david-ignatius/the-best-restraint-is-old-fashioned-market-discipline-in-which/) [David Ignatius](https://sms4smile.com/quotes/author/david-ignatius/) > [Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will…](https://sms4smile.com/quotes/ben-bernanke/market-discipline-can-only-limit-moral-hazard-to-the-extent-that-debt/) [Ben Bernanke](https://sms4smile.com/quotes/author/ben-bernanke/) > [Large financial institutions in this country will always play a role that is essential to our economic growth. But they must only be permitted…](https://sms4smile.com/quotes/henry-paulson/large-financial-institutions-in-this-country-will-always-play-a-role/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [Non-bank financial institutions provide credit that is essential to U.S. businesses and consumers.](https://sms4smile.com/quotes/henry-paulson/non-bank-financial-institutions-provide-credit-that-is-essential-to-u/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [The financial security of all Americans - their retirement savings, their home values, their ability to borrow for college, and opportunities for more and…](https://sms4smile.com/quotes/henry-paulson/the-financial-security-of-all-americans-their-retirement-savings/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [To restore confidence in our markets and our financial institutions so they can fuel continued growth and prosperity, we must address the underlying problem.…](https://sms4smile.com/quotes/henry-paulson/to-restore-confidence-in-our-markets-and-our-financial-institutions/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [I have great, great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our…](https://sms4smile.com/quotes/henry-paulson/i-have-great-great-confidence-in-our-capital-markets-and-in-our/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [It isn't given to man to be able to run a financial institution where different interest-rate scenarios will prevail on all of that so…](https://sms4smile.com/quotes/warren-buffett/it-isn-t-given-to-man-to-be-able-to-run-a-financial-institution-where/) [Warren Buffett](https://sms4smile.com/quotes/author/warren-buffett/) > [All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of…](https://sms4smile.com/quotes/franklin-d-roosevelt/all-safe-deposit-boxes-in-banks-or-financial-institutions-have-been/) [Franklin D. Roosevelt](https://sms4smile.com/quotes/author/franklin-d-roosevelt/) > [I think something that forces financial institutions to write down underwater mortgages, I think, would be a sensible thing to do.](https://sms4smile.com/quotes/christina-romer/i-think-something-that-forces-financial-institutions-to-write-down/) [Christina Romer](https://sms4smile.com/quotes/author/christina-romer/) ## More by Henry Paulson > [If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets,…](https://sms4smile.com/quotes/henry-paulson/if-a-financial-institution-has-business-operations-in-the-united/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [It is the policy of the federal government to use all resources at its disposal to make our financial system stronger.](https://sms4smile.com/quotes/henry-paulson/it-is-the-policy-of-the-federal-government-to-use-all-resources-at/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [A state-based regulatory system is quite burdensome. It allows price controls to create market distortions. It can hinder development of national products and can…](https://sms4smile.com/quotes/henry-paulson/a-state-based-regulatory-system-is-quite-burdensome-it-allows-price/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [Well, as you know, we're working through a difficult period in our financial markets right now as we work off some of the past…](https://sms4smile.com/quotes/henry-paulson/well-as-you-know-we-re-working-through-a-difficult-period-in-our/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [I look forward to the day when China has a truly market-determined solution... 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We need to be vigilant in ensuring that each and every American has the opportunity to acquire the…](https://sms4smile.com/quotes/henry-paulson/america-is-the-land-of-opportunity-we-need-to-be-vigilant-in-ensuring/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental…](https://sms4smile.com/quotes/henry-paulson/an-open-competitive-and-liberalized-financial-market-can-effectively/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [I do not believe the United States and the Americans are going to let Donald Trump become president... I think the challenge is Donald…](https://sms4smile.com/quotes/henry-paulson/i-do-not-believe-the-united-states-and-the-americans-are-going-to-let/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [Too often, we restrict trade that would create U.S. jobs and is in our national interest.](https://sms4smile.com/quotes/henry-paulson/too-often-we-restrict-trade-that-would-create-u-s-jobs-and-is-in-our/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [Our overriding goal in restructuring our financial architecture should be that taxpayers never again have to save a failing financial institution.](https://sms4smile.com/quotes/henry-paulson/our-overriding-goal-in-restructuring-our-financial-architecture/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [I think history shows that countries have to have some kind of a threshold level of economic success before they begin to have the…](https://sms4smile.com/quotes/henry-paulson/i-think-history-shows-that-countries-have-to-have-some-kind-of-a/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [We don't have the necessary laws or powers to deal with failing non-bank institutions. If they're a big bank, the depositor has deposit insurance,…](https://sms4smile.com/quotes/henry-paulson/we-don-t-have-the-necessary-laws-or-powers-to-deal-with-failing-non/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) > [U.S. exports to China have more than quintupled since China entered the WTO and have grown more quickly than imports. In fact, China is…](https://sms4smile.com/quotes/henry-paulson/u-s-exports-to-china-have-more-than-quintupled-since-china-entered/) [Henry Paulson](https://sms4smile.com/quotes/author/henry-paulson/) [Explore all 174 Henry Paulson quotes ](https://sms4smile.com/quotes/author/henry-paulson/) ## More Constrain quotes > [All errors which a man is likely to commit against advice are far outweighed by the evil of allowing others to constrain him for…](https://sms4smile.com/quotes/john-stuart-mill/all-errors-which-a-man-is-likely-to-commit-against-advice-are-far/) [John Stuart Mill](https://sms4smile.com/quotes/author/john-stuart-mill/) > [Contrary to popular belief, we do not face a choice between economy and ecology, It is often said that protecting the environment would constrain…](https://sms4smile.com/quotes/kofi-annan/contrary-to-popular-belief-we-do-not-face-a-choice-between-economy/) [Kofi Annan](https://sms4smile.com/quotes/author/kofi-annan/) > [You can live constrained within the confines of a solely material perspective, or choose instead the infinite field of quantum possibility.](https://sms4smile.com/quotes/marianne-williamson/you-can-live-constrained-within-the-confines-of-a-solely-material/) [Marianne Williamson](https://sms4smile.com/quotes/author/marianne-williamson/) > [When dams were erected on the Columbia, salmon battered themselves against the concrete, trying to return home. I expect no less from us. We…](https://sms4smile.com/quotes/derrick-jensen/when-dams-were-erected-on-the-columbia-salmon-battered-themselves/) [Derrick Jensen](https://sms4smile.com/quotes/author/derrick-jensen/) > [We need open minds and open hearts when we wrestle with the past and ask questions of it, and the answers it will provide…](https://sms4smile.com/quotes/eamon-duffy/we-need-open-minds-and-open-hearts-when-we-wrestle-with-the-past-and/) [Eamon Duffy](https://sms4smile.com/quotes/author/eamon-duffy/) > [If I am to constrain you by any law, it must be one by which I am also bound.](https://sms4smile.com/quotes/immanuel-kant/if-i-am-to-constrain-you-by-any-law-it-must-be-one-by-which-i-am-also/) [Immanuel Kant](https://sms4smile.com/quotes/author/immanuel-kant/) > [Ramp skating has become the most popular televised form of skating because they can constrain it. They can judge it based on what's happening…](https://sms4smile.com/quotes/jeffrey-deitch/ramp-skating-has-become-the-most-popular-televised-form-of-skating/) [Jeffrey Deitch](https://sms4smile.com/quotes/author/jeffrey-deitch/) > [The moral sentiments that constrain economic life also promote it.](https://sms4smile.com/quotes/ted-malloch/the-moral-sentiments-that-constrain-economic-life-also-promote-it/) [Ted Malloch](https://sms4smile.com/quotes/author/ted-malloch/) > [As matters now stand, the veto seems inappropriate, given the absence of any deep ideological split between major states, and definitely constrains the war-prevention…](https://sms4smile.com/quotes/richard-a-falk/as-matters-now-stand-the-veto-seems-inappropriate-given-the-absence/) [Richard A. Falk](https://sms4smile.com/quotes/author/richard-a-falk/) > [Attachment constrains our vision so that we are not able to see things from a wider perspective.](https://sms4smile.com/quotes/dalai-lama/attachment-constrains-our-vision-so-that-we-are-not-able-to-see/) [Dalai Lama](https://sms4smile.com/quotes/author/dalai-lama/) > [Necessities can be many, but the one that is stronger is that which constrains you to win or to die.](https://sms4smile.com/quotes/niccolo-machiavelli/necessities-can-be-many-but-the-one-that-is-stronger-is-that-which/) [Niccolo Machiavelli](https://sms4smile.com/quotes/author/niccolo-machiavelli/) > [It vexes me when they would constrain science by the authority of the Scriptures, and yet do not consider themselves bound to answer reason…](https://sms4smile.com/quotes/galileo-galilei/it-vexes-me-when-they-would-constrain-science-by-the-authority-of-the/) [Galileo Galilei](https://sms4smile.com/quotes/author/galileo-galilei/) > [Profound commitment to a dream does not confine or constrain: it liberates. Even a difficult, winding path can lead to your goal if you…](https://sms4smile.com/quotes/paulo-coelho/profound-commitment-to-a-dream-does-not-confine-or-constrain-it/) [Paulo Coelho](https://sms4smile.com/quotes/author/paulo-coelho/) > [To constrain the brute force of the people, the European governments deem it necessary to keep them down by hard labor, poverty and ignorance,…](https://sms4smile.com/quotes/thomas-jefferson/to-constrain-the-brute-force-of-the-people-the-european-governments/) [Thomas Jefferson](https://sms4smile.com/quotes/author/thomas-jefferson/) > [In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the…](https://sms4smile.com/quotes/hyman-minsky/in-a-world-of-businessmen-and-financial-intermediaries-who/) [Hyman Minsky](https://sms4smile.com/quotes/author/hyman-minsky/) [Browse all 84 Constrain quotes ](https://sms4smile.com/quotes/about/constrain/) ```json { "@context": "https://schema.org", "@graph": [ { "@type": "Quotation", "text": "For market discipline to constrain risk effectively, financial institutions must be allowed to fail. 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