Haldane has suggested that modularity would add sustainability to the financial system. The purpose of this paper is to suggest a route by which such modularity might be achieved.
The paper attempts to explore the micro‐foundations of regulatory regimes as rule bound orders and demonstrate that externally imposed rules may not be absolutely necessary to constrain the behaviour of individuals or organisations. Voluntarily self‐agreed rules may allow for greater communication and monitoring among the participants in a group. This in turn can result in greater sustainability. The paper uses examples from the work of Ostrom on sustainable common‐pool resources to support this view. Examples are also given from the financial services industry.
The paper suggests that non‐legislative, informal rules of behaviour may be a useful source of constraining unsustainable behaviour in the financial services industry. In turn these self‐enforcing rule‐bound regimes may facilitate one feature of sustainable systems – modularity.
The paper suggests that stakeholders in financial systems may find it useful, on a bottom‐up basis, to facilitate the creation of groups of financial institutions that would create and then adhere to self‐enforcing rules that could result in sustainable practices.
The originality of the paper is on the focus on self‐created and self‐enforced rule‐following and on using the work of Ostrom in a financial services setting.
