Vítor Constâncio: The future of finance and the outlook for
regulation
Remarks by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the Financial
Regulatory Outlook Conference, organised by the Centre for International Governance Innovation
and Oliver Wyman, Rome, 9 November 2017.
* * *
Ladies and gentlemen,
I am grateful to the organisers for the opportunity to publicly address some important issues
related to regulation and the future of finance. Ten years since the outbreak of the financial crisis
and still ahead of fully concluding the subsequent regulatory reform, we are already seeing
attempts to roll back financial regulation.
The reform has been successful in building a safer financial system and priority should be given
to completing the agenda of Basel III. Subsequently, there will be time to assess its effects and
possibly adjust it with some amendments that may improve its effectiveness. Right now, the
world economy is enjoying a moment of synchronous recovery and, if anything, the concerns
arise from possible excesses of financial market buoyancy, not from a lack of finance to support
the recovery.
It is still premature to assess the strength of the current regulatory pushback but not soon
enough to try to prevent its success. We should not allow the memory of the financial crisis we
went through to be dissipated in the fog of vested interests. Euro area output is now 19% below
the level it would have achieved had the trend growth in the 15 years prior to 2007 continued
thereafter. Were the economy to have grown from now on at that same trend, the accumulated
loss of output until 2030, properly discounted, would represent more than three times the annual
output in 2008. The crisis left behind a permanent economic loss with its correspondent human
costs that help explain the populist backlash that is spreading at each election in our
democracies.
The crisis represented a remarkable failure of macroeconomics which has ignored that the
economy is not swiftly self-correcting towards a good equilibrium. Public policies are thus
needed. At the same time, the crisis showed that the financial sector can endogenously generate
imbalances with significant consequences for the real economy. Furthermore, finance theory,
endorsing the Efficient Market Hypothesis, contributed to the views favourable to light regulation
and supervision. Several past regulatory changes reflect those views: the Glass-Steagall repeal;
the 1995 Basel Accord allowing the use of banks' internal models for the assessment of market
risk; the 2004 Basel II Accord extending the use of internal models to credit risk; the 2003 U.S.
Securities & Exchange Commission (SEC) decision allowing mortgage Asset Based Securities
(ABS) to be used in repurchase agreements (repos) and the subsequent changes in 2005 to the
U.S. Bankruptcy Law, excluding repos from bankruptcy processes thus rendering them a "safe
haven".
The crisis and the expansion of finance
As in past cases, the recent financial crisis had its origins in excessive leverage and excessive
credit or debt creation in the financial system as a whole.
These excessive imbalances were not considered a risk by the economic thinking of the time. As
credit expanded and assets grew, the share of the financial sector in total GDP increased
exponentially. In Europe, this led to strong growth of some important universal banks. In the euro
area, total bank assets represented 116% of GDP in 1985 but increased to 219% in 2000 and to
320% in 2008. Already in 2002, the assets of the 12 biggest banks in Europe represented 64% of
1
GDP and as Bayoumi states in his recent book, "they were already becoming too big to fail". In
the U.S., the increase in finance was mostly due to the expansion of the so-called "shadow
banking" sector. In 2007, total assets in the shadow banking sector equalled the level of total
bank assets. Figures concerning non-banks' involvement in credit intermediation are also
remarkable: the size of euro area investment funds more than tripled from 2007 to the present,
from 13% of total banking assets to the present 41%. Profits are a further indicator of the sector's
expansion: in the U.S. financial sector profits climbed from 8% of the non-financial firms' profits
at the beginning of the 1980s to a peak of 68% in 2003, hovering around 30% in the past few
2
years.
The expansion of the financial sector was not enabled by savings invested in the capital of
financial institutions but mostly by a redefinition of risk capital and its endorsement by regulators.
On the eve of the crisis, a few significant European banks had a leverage ratio (equity over total
assets) of just 1.5% to 2% while capital ratios were well above the regulatory minimum of 8%.
The "magic" of internal models to calculate risk weights in regulatory capital explains the
difference, although the low leverage ratio meant that a loss of 3% of total assets would wipe out
banks' capital.
The second development underlying the expansion of finance relates to the rapid growth of the
shadow banking sector, especially in the U.S. To be precise, the appropriate concept of shadow
banking conflates entities and activities involved in a vast array of services related to
securitisation, repos and securities financing transactions (SFTs), as well as over-the-counter
(OTC) derivatives. These instruments contributed to the creation of a market-based credit
system funded by secured short-term market funding.
The motivation for this new credit system relates to the emergence of very sizeable cash pools
that could not find safety in banks' insured deposits and were in search of safer forms of placing
3
that cash in the short-term. Those three main instruments were used to create supposedly
"safer" private short-term assets. The crisis came when crashing housing prices raised doubts
about securitisations and when chains of inside liquidity created by repos with re-hypothecation
4
and re-use of the same securities, collapsed with rising haircuts and resulting illiquid markets.
That is why Gary Gorton characterises the 2007/2008 financial crisis as a "run on repo".
We live now in a collaterised financial system where unsecured interbank transactions have
5
been continuously declining. It is important to understand these developments because they
represent a structural change in our financial systems and go beyond the simple increased role
of non-bank financial institutions in credit intermediation. The enhanced role of these institutions
is nevertheless relevant as they may contribute to the increase of leverage in the whole financial
system that cannot be measured by simply looking at banks' balance sheets but has to consider
synthetic leverage built with derivatives.
History illustrates that there is a spontaneous tendency for finance to increase leverage and
maturity transformation without considering the potential social costs of an overall excess of
credit and debt and the crashes that may follow. This is particularly true for banks, where
incentives are distorted by the safety net ensured by deposit guarantee schemes and by the
implicit backstop normally provided by public authorities to avoid the spread of financial crises.
There is therefore a difference between private and social costs and benefits that provides a
justification for financial regulation.
Finance and growth
The usual arguments against financial regulation rely on the notion that finance is good for
6
growth, and more finance is always better. Before the financial crisis, the near-consensus in the
academic literature was that the relationship between finance and growth was causal and
monotonic. The financial crisis prompted a reassessment of this view. More recent evidence has
illustrated that the relationship between finance and growth is non-linear: when it grows beyond a
threshold level, estimated to be a ratio of private credit to GDP of around 100%, the financial
7
sector stops supporting, and can even start hurting, economic growth. A number of theories, as
well as evidence to support them, have been put forth to explain this fact. First, it has been
pointed out that financial institutions first exhaust the most productive investment opportunities:
too much financial intermediation thus tends to imply excessive support of unproductive
8
investment projects. Others have suggested that there is a trade-off between economic
development and macroeconomic risk which is exacerbated when financial intermediation
9
intensifies. The third potential explanation for the non-monotonic relationship between finance
and growth at high levels of development is the brain drain from the real sector into the financial
sector, which led one economist to worry about whether we have too many financiers and too
10
few engineers. A final explanation relates to increased rent extraction from the real economy by
11
financial firms managing investors' money.
Despite a number of regulatory initiatives to tame finance after the crisis, the financial sector at
present is growing faster than GDP. In spite of this, the financial industry argues that finance has
been overregulated, especially in terms of high capital requirements. The recovery of credit
growth however, seems to disprove this.
It is also important to underline that the studies showing the negative effects of too much finance
refer to the growth of credit to the private sector. Indeed, the evidence that most financial crises
in history stemmed from excessive private debt, be it corporate or household debt, is
unequivocal. A recent paper analyses financial crises in advanced economies from 1870 to 2008
and finds that "private credit booms, not public borrowing or the level of public data, tend to be the
12
main precursors of financial instability in industrial countries". In the context of the European
crisis, I showed in 2013 that the main driver of the financial and economic imbalances was the
fact that credit from banks in core countries to banks in the periphery quintupled from the
13
inception of monetary union until 2008.
Even in the absence of crises, high levels of private debt are detrimental to the economy. For
example, empirical research has recently argued that excessive corporate debt is one of the root
causes of the slow recovery in corporate investment in Europe since the financial crisis as
14
investment is pushed down by corporate debt overhang. Moreover, recent evidence shows that
high household debt is inevitably associated with a slowdown of GDP growth and an increase in
15
unemployment rates.
The outstanding corporate debt in the euro area almost doubled during the decade preceding the
global financial crisis, from EUR 5.3 trillion in 1999 to EUR 9.6 trillion in 2008. Corporate debt
continued to rise throughout the crisis, albeit at a slower pace, and reached just over EUR 11
trillion in 2016. We saw similar developments in household debt over these two decades, with
household debt rising particularly strongly in the decade preceding the global financial crisis,
almost doubling from EUR 3.2 trillion in 1999 to EUR 5.8 trillion in 2008, and rising further since
then - albeit at a slower pace, to reach EUR 6.3 trillion in 2016. Importantly, during these two
decades, there is no clear causal relationship between developments in either outstanding
corporate debt or in outstanding household debt and productivity growth.
These facts explain why macroprudential policy, born in the wake of the crisis, tries to smooth
out credit booms and tame finance by acting at the level of the system as a whole.
FinTech and regulation
Another challenge to regulation comes from the spread of FinTech: the use of new technologies
to develop and distribute financial products and services. The evident benefits of FinTech relate
to the potential reduction of transaction costs and the prospect of greater financial inclusion
around the world. In the view of its enthusiasts, FinTech will be radically disruptive, breaking
industry boundaries and upending financial intermediation by eliminating traditional banks. There
is a lot of exaggeration in this view. The footprint of new FinTech firms is still rather small. The
new technologies - notably blockchain, artificial intelligence, machine learning and decision
algorithms - are already being used by incumbent banks and asset managers who are not about
to be swarmed by a host of nimble small FinTech firms.
Nevertheless, some usage can be significantly transformative. The use of artificial intelligence
and machine learning by asset managers is one example that will create new risks and may
contribute to further concentration in the sector. Another example is the change in Real Time
Gross Settlement systems run by central banks. Private big banks are already developing
projects based on blockchain technology to create their own networks to clear and settle all types
of transactions among themselves. Some central banks have been working on similar systems
collaborating with private banks. The Ubin project is continuing in Singapore whereas, last May,
the Bank of Canada concluded that its own Jasper project showed that the technology was not
sufficiently mature. In some countries, the use of cash, notes and coins is declining at fast rates
and we cannot disregard its possible disappearance in the future. In most jurisdictions however,
that possibility is very far away, if it ever occurs. In the euro area, issuance of bank notes has
more than tripled since 2001 and is still growing at about 5% a year.
All the developments I mentioned would not materially change the nature of our financial system,
the concept of money or the effectiveness of central banks' monetary policy. The so-called
private "crypto-currencies" can never prevail as general money substitutes. Their designation is a
misnomer as they are not a currency but just a commodity used as a speculative asset and as a
restricted medium of exchange in very special circumstances, comprising criminal activities or
failed States with collapsed institutions. Instead, the use of the blockchain by central banks to
create digital currency open to all citizens without limits would be really disruptive. This would be
a radical political choice that could end banking as we know it and is therefore unlikely to happen.
Ignoring that possibility and regarding current banking activity, FinTech has penetrated mostly
into payment systems. Banks' payment-related income has decreased but some is retained as
bank accounts are still the ultimate way of settling. Where FinTech can have a big impact is in
cross-border payments by using the blockchain technology to eliminate several intermediate
steps, speed up global transfers and promote worldwide financial inclusion.
Concerning credit, peer-to-peer (P2P) or crowdfunding, FinTech lending is still very small in
general, with the exception of the U.S. where mortgage origination is significant, even if the online
16
firms do not keep the exposures in their small balance sheets.
This progress is naturally due to the fact that FinTech firms are much less regulated than
traditional institutions under the presumption that it is good to allow new competition. The hope
of FinTech enthusiasts is that its spread will lead to much lighter financial regulation.
However, new technologies generate new risks and do not eliminate the old ones which provide
the rationale for financial regulation in the first place. Asymmetries of information and default
externalities do not disappear with the introduction of new ways of supplying financial
services. FinTech does not provide an excuse for less regulation. It is the specific nature of
finance in our economies that provides the rationale for financial regulation which is different from
the one applied to other sectors, particularly those related to privatised former public utilities. In
this case, it is insufficient competition that justifies the regulatory bias in favour of new firms
entering the sector. This principle is not a major driver of regulation in the financial sector where
competition is in general sufficient, prices do not need to be regulated and no special protection
is warranted for new entrants, especially when they offer only part of the services assured by the
incumbents.
Another principle is that we need a financial system with bank-like institutions to provide deposit
liquidity services and maturity transformation. Narrow banking or similar approaches do not
17
guarantee the amount of credit to finance investment and economic growth. The solution
proposed by FinTech enthusiasts of substituting banks by a sort of money market funds or even
by investment funds, offering securities' accounts with provision of liquidity services, confronts
the difficulty that in stressful situations there is no guarantee that funds' units can be redeemed at
par. For good reasons, mutual or investment funds cannot legally offer cheque accounts.
Historically, bank regulation was created to ensure depositors' protection and to prevent bank
runs. The imposition of capital ratios and the creation of deposit guarantee schemes emerged at
the beginning of the last century as the minimum regulatory solutions to attain those objectives.
Similar concerns subsequently led to the supervision of individual banks' asset quality and
liquidity position, completing the micro-supervisory instruments to ensure the robustness of
individual institutions. The deposit contract is indeed the specific service that distinguishes a
bank from other financial institutions. Several other financial entities can provide credit. However,
only when the credit is funded by regularly collected funds from the public and redemption at the
same nominal value is guaranteed, is a financial institution considered a bank, subject to the
respective regulation. Regulators should not lose sight of these basic concepts when
allowing FinTech firms to get out of their facile regulatory "sandboxes".
Overview of the regulatory reform and its limitations
As mentioned at the start, ahead of the conclusion of the post-crisis regulatory reform, there are
already attempts to roll back financial regulation. The main points under pressure are the
Leverage Ratio (LR), the limitation of the use of internal models to assess credit risk and
corresponding capital requirements, the Net Stable Funding Ratio (NSFR) and the Fundamental
Review of the Trading Book.
Regarding capital requirements, the mandatory LR applied to banks was one of the most
important reforms introduced. Basel III fixed the LR at 3% of Tier 1 capital which still corresponds
to total assets about 33 times Tier 1 (against 50 times equity for some EU banks pre-crisis).
There are pressures to exclude repos, sovereign bonds and export credits from the LR. This
weakening of the standard should be avoided as it increases the probability of crises and output
18 19
losses. In his recent book, William Cline (2017) estimates optimal LR at 7% to 8% for
significant U.S. banks, corresponding to 12% to 14% of risk-weighted capital ratio (RWCR).
20
Morris Goldstein (2017) shows that the LR is more accurate in predicting bank failures than
RWCRs since the latter have been affected by misuse of internal models by large banks. In fact,
for U.S. banks, Goldstein shows that the ratio between risk-weighted assets and total assets
came down from 70% in 1993 to 40% in 2011 with no apparent link to the credit portfolio
composition.
The binding risk-weighted common equity capital ratio was fixed by Basel III at 7%. Euro area
significant banks now have, on average, common equity tier 1 ratio of 14%. A number of studies
to calibrate an optimal capital ratio against a reasonably low crises probability have been carried
21
out. In preparation for Basel III , studies identified that banking crises occur every 20 to 25
years, corresponding to a 4.6% probability per annum. It is shown that a four percentage point
increase in the capital ratio lowers this annual probability to less than 1%, while a one percentage
point reduction in the annual probability of banking crises results in an expected drop in output of
0.6%. The study did not try to estimate an optimal level of capital but a 2015 Bank of England
22
paper maps this analysis into a desirable range of 16 to19%, while an earlier paper puts this
23 24
range at 15 to 20%. Recently, Jordá, Richter, Schularik and Taylor (2017) illustrate that
RWCR are not good predictors of bank crises and recall that in the 1920s, the capital ratios
above 20% did not prevent the host of bank failures in the Great Depression. The analysis shows
that higher capital reduces the severity of the crises as better capitalised banks tend to provide
more credit.
Some authors argue that the introduction of the concepts of Total Loss-Absorbable Capacity
(TLAC) and Minimum Requirements for Eligible Liabilities (MREL) for the purpose of bank
26
resolution could implicate a lower capital ratio to start with. However, a more recent FED
paper, considering the potential effect of TLAC still reaches an optimal range of capital ratio
27
between 13 and 25%.
Considering these studies, there is no justification to weaken the LR standard, nor is there
rationale for not restricting the use of internal models for credit risk, to be finalised before the
year-end. Without an agreement to finalise Basel III, we run the risk of contributing to the
fragmentation of international regulation and helping those who want to destroy the multilateral
approach that has served us well.
But beyond solvency and high capital ratios, the crisis has illustrated liquidity risk, thus the
importance of liquidity management rules introduced for the first time in Basel III standards.
Particularly in Europe, banks relied too much on wholesale funding reaching an average
creditto-deposit ratio of 145% in 2007, a level that stands now at 120%. In this perspective, a
mandatory NSFR is quite relevant and should not be weakened or delayed.
Maturity transformation by banks is very much driven by housing financing and long-term
mortgages. This has generated proposals to change the terms of housing financing to further
reduce the risks of funding mortgage credit with short-term deposit liabilities. Many ideas have
28
been put forward to change this including tilting even more the NSFR to correct that bias;
encouraging more securitisation with low maturity transformation; creating a new type of financial
institutions specialised in mortgages or, introducing a new type of mortgage contract that would
have more equity participation by lenders in exchange of sharing the returns of appreciating
29
housing prices, proposed by Mian and Sufi in "House of debt".
Housing credit has been growing in importance for banks in many jurisdictions over the past
decades. In 17 developed countries, the weight of real estate bank lending in total credit
30
increased 40% from 1970 to 2007. New regulations restricting the role of banks in mortgage
lending would therefore be a significant structural change in our financial systems.
In addition to new capital and liquidity requirements, the regulatory reform had some success in
addressing the question of too-big-to-fail (TBTF) institutions. The international agreement in
the Financial Stability Board (FSB) about a set of key attributes for bank resolution and the
introduction of TLAC, created conditions for more credible resolution regimes. The Dodd-Frank
Act in the U.S. and the Bank Recovery and Resolution Directive in the EU marked a shift away
from the previously prevailing bailout approach to a bail-in regime. In what regards cross-border
resolutions, the new framework still has some issues to clarify, especially if the U.S. abolishes
the Orderly Liquidation Authority and the respective Fund. In general, the new regime can be
entrusted to deal with one or a few failing institutions. This is important to ensure market
discipline and avoid moral hazard.
However, the remaining concern is that the framework may not be appropriate to deal with
general financial crises like the one we just had, when the problem is the existence of
too-manyto-fail banks. Examining the history of crises, it is hard to avoid the conclusion that such
situations require public intervention to backstop liabilities and recapitalise the system.
Exceptional interventions that were carried out in the crisis are however no longer legally possible
31
in several jurisdictions. Also, there is no crisis management framework ready should another
episode of generalised banking crisis emerge. In fact, public interventions may reduce overall
income losses for the population stemming from economic distress. The Troubled Asset Relief
Program in the U.S. that was totally repaid by the banks or the public intervention in the Nordic
banking crisis of the 1990s, that penalised shareholders and reduced the costs for the State, are
examples of how to avoid both losses for the public and moral hazard.
Turning now to non-banks, the role of the in the crisis greatly related to
shadow banking sector
the use of securitisation, repos and OTC derivatives. The crisis revealed the important
32
contribution of these dynamics in derivatives and SFT to systemic stress. For SFTs,
particularly repos, a key concern relates to excessive reliance on short-term wholesale funding
via these transactions. Indeed, SFTs were identified as a major source of leverage in the
financial system and as an important determinant of banks' vulnerability to funding and liquidity
33
shocks.
34
The creation of inside liquidity by repos was important for the funding of the housing bubble .
The 2003 decision by the SEC to allow mortgage ABS to be used for repos and the 2005 legal
amendment excluding repos from bankruptcy processes led to the increase of the repo market.
35
Similar changes took place at the same time in Europe. As stated in Perotti (2010) "These
privileges were granted to overnight secured credit and derivatives, and essentially allowed these
lenders to 'front run' all other investors in case of default. This made such lending safer for the
lenders, and thus cheap for the borrowers. The result was fantastic growth of unstable funding to
the detriment of stability". We know what happened in the crisis, once again proving the
statement by Douglas Diamond: "Financial crises are everywhere and always about short-term
36
debt".
The crisis itself made securitisations and repos shrink significantly. In the U.S., broker-dealers
changed into banks, making the shadow banking sector smaller. Post-reform, securitisations
became less attractive being now subject to higher capital charges, securities vehicles were
consolidated with bank sponsors and repos and OTC derivatives have become subject to central
clearing. The overall progress in reducing risk in STFs and derivative markets has been
significant, but might not be sufficient. Very little has been done to prevent the expansion and
misuse of those instruments in any future euphoric episode. The recent recommendations by the
FSB are in my view not sufficiently far-reaching regarding the re-hypothecation and re-use of
37
securities in repos. Regarding the use of margins and haircuts, the FSB recommendations to
introduce minimum initial levels are also quite narrow: they exclude sovereign paper and
transactions between regulated institutions and apply only to non-centrally cleared operations.
Going forward, more may have to be done.
In regulatory circles, the potential for setting margins and haircuts as a policy tool to address
systemic risks in derivatives and SFT markets was already identified shortly after the global
financial crisis. Indeed, the BIS Committee on the Global Financial System (CGFS) concluded,
already in 2009, that margining practices in OTC derivatives and haircut-setting in SFTs are a
source of procyclicality in the financial system, and recommended enhancements to these
practices in order to dampen the build-up of leverage in good times and soften the system-wide
38
effects in bad times. Furthermore, the CGFS encouraged macroprudential authorities to
consider measures that involve countercyclical variations in margins and haircuts.
In the ECB's response to the European Commission's consultation on the review of the
European Market Infrastructure Regulation (EMIR), we suggested "that macroprudential
intervention tools be included in Level 1 of EMIR" and noted "two policy instruments that
potentially could reduce or limit leverage through derivatives and SFTs and the pro-cyclicality of
margins and haircuts: (a) permanent minimum requirements, and (b) time-varying minimum
39
requirements or buffers".
Setting minimum margins and haircut floors would limit the build-up of leverage and reduce the
40
procyclicality of current margin and haircut setting practices.
On the other hand, I welcome the release of policy recommendations by the FSB to address
structural vulnerabilities arising from asset management activities. They cover liquidity mismatch
between fund investments and redemption terms, operational risk, securities lending activities
and leverage reporting by investment funds, including synthetic leverage built up usually with
OTC derivatives. Leverage requirements for investment funds, already partially introduced in
Europe, represent an important point. The final aim should be to extend LR requirements to a
broader set of financial institutions and to account for the risks posed by synthetic leverage from
41
the use of derivatives as recently proposed by Dirk Schoenmaker.
The last point I want to address concerns macroprudential policy. It is well known that this new
policy emerged as one of the lessons of the crisis, namely the realisation that while individual
institutions could be seen as robust, the system as a whole could be generating imbalances and
vulnerabilities. Externalities stemming from excessive leverage, liquidity mismatch and network
interconnectedness were indeed building up before the onset of the crisis. Since then, debate
about regulatory reform adopted this overall angle of analysis which then shaped the instrument
calibrations. Two objectives are normally assigned to macroprudential policy: to increase the
42
resilience of the system and to smooth the amplitude of the financial cycle. I want to underline
the second goal as a complement to monetary policy to manage the financial and the business
cycle, respectively.
By using instruments like the counter-cyclical capital buffer and borrower-based
debt-toincome and loan-to-value tools in housing credit, macroprudential policy can use a targeted way
of containing credit expansion, especially if associated with real estate. In turn, monetary policy,
43
precisely because "it gets in all of the cracks" , is too blind an instrument to try to contain
particular credit booms. If used to address systemic risks, it may unnecessarily lead to
recessions that inflation conditions would not justify. This is even more the case in a monetary
union where vulnerabilities identified in each country can be addressed with macroprudential
policy, allowing for the appropriate heterogeneity, while countries remain subject to a single
monetary policy. Another aspect of the problem is that when asset returns are going up sharply,
for instance in housing, the increase in interest rates would have to be quite sizeable to have any
effect in curbing an asset price boom. In general, a monetary policy of "leaning against the wind"
44
for financial stability reasons could induce significant output losses. Macroprudential policy and
monetary policy rely on separate tools and aim to achieve different objectives. Yet, they need to
be co-ordinated, which is a non-trivial task given that financial and business cycles can be
desynchronised. It is my contention that without an effective macroprudential policy, advanced
economies will not be able to safeguard financial stability. It is therefore an important endeavour
to keep fighting for the appropriate tools and policies to smooth the financial cycle and to
sufficiently tame finance in order to avoid crises that may threaten the future of our economies.
Thank you for your attention.
1
Bayoumi, T. (2017) "Unfinished Business: The unexplored causes of the Financial Crisis and the lessons yet to
be learned", Yale University Press.
2
Source: US NIPA series of Domestic Financials Profits (excluding the Federal Reserve) over Non-Financial
Corporate profits with inventory valuation adjustment.
3
See Pozsar, Z. (2011), "Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System", IMF
Working Paper 11/190; Claessens, S. an