The book analyzes the manifold causes of financial instability that occurred since the Eighties. A maintained interpretation is that crises catalyze macroeconomic and regulatory reforms in order to strengthen financial systems and lessen the effects of crises should they nevertheless occur. The seven chapters discuss how finance and regulatory reforms have evolved over the past two centuries; survey theoretical models of financial crises; review development, costs and determinants of banking and exchange rate crises in advanced and emerging economies, paying special attention to the subprime crisis; evaluate the theoretical and practical underpinnings of the main tools of investor protection, prudential banking supervision and of the institutional arrangements of the financial safety net; assess Basel III and the recent financial reforms in the US and EU against the backdrop of the emerging macroprudential supervision framework.