The article by Andrew G. Haldane and Robert M. May explores the systemic risk in banking ecosystems, drawing parallels between financial networks and ecological food webs. They argue that the complexity of financial instruments, such as derivatives, has not been adequately considered in terms of their potential impact on system stability. The authors highlight the need to understand the dynamics of financial networks, particularly the interplay between complexity and stability, to minimize systemic risk. They discuss the role of intrafinancial system claims in generating bank failures and instability, focusing on the challenges of pricing complex derivatives and the limitations of arbitrage pricing theory (APT). The article also examines how initial bank failures can propagate through the system, causing cascades of subsequent failures. This propagation can occur through interbank loan shocks, liquidity shocks, and funding liquidity shocks. The authors suggest that regulatory policies should focus on setting higher capital and liquidity ratios to strengthen the financial system's resilience. They propose that regulatory requirements should be calibrated to equalize the marginal cost of failure for the entire system, rather than just individual institutions. Additionally, they advocate for the use of macro-prudential policies, which aim to manage systemic risk by countercyclical adjustments in regulatory buffers. The article also emphasizes the importance of shaping the topology of the financial network, promoting diversity and modularity to enhance systemic resilience. It concludes with a call for regulatory incentives to encourage diversity in balance sheet structures, business models, and risk management systems, and for the consideration of modular structures to limit the spread of contagion. Overall, the article provides a comprehensive analysis of systemic risk in banking ecosystems and offers policy recommendations to mitigate it.The article by Andrew G. Haldane and Robert M. May explores the systemic risk in banking ecosystems, drawing parallels between financial networks and ecological food webs. They argue that the complexity of financial instruments, such as derivatives, has not been adequately considered in terms of their potential impact on system stability. The authors highlight the need to understand the dynamics of financial networks, particularly the interplay between complexity and stability, to minimize systemic risk. They discuss the role of intrafinancial system claims in generating bank failures and instability, focusing on the challenges of pricing complex derivatives and the limitations of arbitrage pricing theory (APT). The article also examines how initial bank failures can propagate through the system, causing cascades of subsequent failures. This propagation can occur through interbank loan shocks, liquidity shocks, and funding liquidity shocks. The authors suggest that regulatory policies should focus on setting higher capital and liquidity ratios to strengthen the financial system's resilience. They propose that regulatory requirements should be calibrated to equalize the marginal cost of failure for the entire system, rather than just individual institutions. Additionally, they advocate for the use of macro-prudential policies, which aim to manage systemic risk by countercyclical adjustments in regulatory buffers. The article also emphasizes the importance of shaping the topology of the financial network, promoting diversity and modularity to enhance systemic resilience. It concludes with a call for regulatory incentives to encourage diversity in balance sheet structures, business models, and risk management systems, and for the consideration of modular structures to limit the spread of contagion. Overall, the article provides a comprehensive analysis of systemic risk in banking ecosystems and offers policy recommendations to mitigate it.