A simple prudential-effort foundation for the financial trilemma
Year: 2026
Type: article
Abstract: The “financial trilemma” asserts that deep financial integration, purely national financial policies and financial stability cannot simultaneously be achieved. Existing formalisations employing ex post burden-sharing games imply the trilemma result hinges on equilibrium selection. We develop a minimal ex ante prudential-effort model where financial integration amplifies cross-border crisis risk and national regulators internalise only part of global losses. The unique symmetric Nash equilibrium underprovides prudential effort and cannot deliver first-best stability when both integration and national policy autonomy are high. That provides a unique-equilibrium foundation for the financial trilemma and clarifies when supranational prudential arrangements are needed.
Source: Economics Letters
Author: Charles Nolan
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,030
OpenAlex ID: W7129239782