Regulatory failure or over-regulation: which is more likely to trigger a crisis?

This is a classic question, much like asking "which is more dangerous, driving too fast or too slow?" The answer isn't black and white. Both scenarios can trigger crises, but the type and onset of these crises are entirely different.

If the economy is likened to a great river, then regulation is its banks.

Lack of Regulation: More Likely to Trigger "Flood-like" Financial Crises

This situation is like riverbanks that are dilapidated or don't exist at all.

• What happens? The water in the river (capital), in pursuit of the fastest path (profit), will recklessly rampage without restraint. People will frantically dig sand by the river (high-risk investments) and build unstable structures (financial derivatives), because there's no oversight, and in the short term, profits seem extremely high. For example, banks might lend money to people who clearly can't repay it, because the risk can be packaged and sold to the next person; investment firms might gamble with extremely high leverage, making huge profits if they win, and if they lose, the entire system will bear the brunt anyway.
• The nature of the crisis: Suddenly, a big wave (like a major investment failure) hits, and the fragile riverbanks instantly collapse. The flood (crisis) sweeps away everything, submerging all. This type of crisis erupts very quickly and violently, much like the 2008 global financial crisis. It comes with fierce momentum and immense destructive power, engulfing everyone, with immediate and apparent consequences.

Therefore, a lack of regulation is more likely to trigger the kind of violent, explosive "financial crises" we typically refer to.

Over-regulation: More Likely to Trigger "Chronic Disease-like" Economic Crises

This situation is like riverbanks that are built too wide and too high, and the river channel is filled with various sluice gates and checkpoints.

• What happens? The flow of river water (capital) becomes extremely slow and difficult. If you want to transport goods from upstream to downstream (invest in a new project), you need to go through countless approvals and meet various stringent conditions. Over time, people find it too much hassle and simply stop transporting (stop investing, stop innovating). Businesses lose vitality because even minor innovations might face huge compliance costs.
• The nature of the crisis: The river water no longer flows, becoming stagnant. The fish and shrimp in the river (small and medium-sized enterprises) slowly die from lack of oxygen, and the entire river loses its vitality. This crisis doesn't erupt overnight; instead, it's a slow, gradual process of suffocation. Economic growth stagnates, unemployment slowly climbs, and society loses its vitality and creativity. It's not as dramatic as a flood, but the damage to the economy is long-term and profound, like boiling a frog slowly.

Conclusion

To directly answer your question: A lack of regulation is more likely to trigger "sudden, violent" financial crises. This is because human greed is difficult to restrain, and without guardrails, some will inevitably rush towards the cliff, dragging a large number of people down with them.

Conversely, crises triggered by over-regulation are more akin to a chronic death of economic vitality.

Ideal regulation should be like sturdy yet flexible riverbanks; they can restrain the destructive power of floods but will not impede the normal flow and navigation of the river. Finding this balance is an eternal dilemma for all policymakers.