Financial regulation and the ecological niche

A crazy thought experiment: what happens if I take a science research paper and substitute the topic of investigation with a hot topic from the social sciences: financial regulation?

Below, I have included excerpts from the original science paper and from my newly minted thought experiment 'paper'.

Original title: The importance of niches for the maintenance of species diversity
Thought experiment: The importance of Glass-Steagall legislation towards inhibiting risky levels of concentration among financial intermediaries

Original introduction: Ecological communities characteristically contain a wide diversity of species with important functional, economic and aesthetic value. Ecologists have long questioned how this diversity is maintained.
Thought experiment: Recent events in global financial markets underscore the risks of excessive concentration among financial intermediaries. Sometimes referred as the problem of 'too big to fail', economists are seeking ways to prevent financial systems from being populated by a small number of dominant players.

Original introduction: Classic theory shows that stable coexistence requires competitors to differ in their niches.
Thought experiment: A canonical lesson of the Great Depression was the recognition of the need to separate the granting of credit — lending — and the use of credit — investing. Specifically, the Glass-Steagall act of 1933 enforced a separation between commercial banks and investment banks.

Original introduction: That niche differences are key to coexistence, however, has recently been challenged by the neutral theory of biodiversity, which explains coexistence with the equivalence of competitors.
Thought experiment: With the repeal of the Glass-Steagall act in 1999, financial theorists convinced regulators that stable financial systems could exist even when a bank has the choice to participate in commercial as well as investment banking activities.

Now, let's get a little stranger. Let's look at results and conclusions of the two papers:

Original findings: However, in the absence of niche differences the most common species, Salvia columbariae, became considerably more common, constituting almost 60% of 2008 community seed mass.
Thought experiment: In the absence of the Glass-Steagall act, Citigroup constituted almost 60% of 2008 global financial market.
Conversely, the seven smallest regional banks constituted 35% of the financial markets in the presence of Glass-Steagall Act, but only 8% in its absence.

Original conclusions: Our results support the hypothesis that niche differences strongly stabilize coexistence.
Thought experiment: Our results show that a separation of investment and commercial banks produces a marked reduction in dangerous concentration in the financial sector.

I'll stop there. The original paper, by Levine & Janneke HilleRisLambers, appears in the September 10th edition of the journal Nature.