Lessons from the Last Financial Crisis and the Future Role of Institutional Investors The dynamics of the financial crisis were driven by underpricing of risk and lack of transparency which led to a loss of confidence when the bubble finally burst. Crisis resolution involved massive government interventions that caused a permanent transfer of losses to the public sector as well as sovereign debt crises that may involve painful solutions. Letting banks fail is a necessary disciplinary factor but this requires a well defined “game plan” which did not exist in the crisis. Regulatory reforms underway aim at restoring confidence but they may hamper the long term potential of institutional investors. Nevertheless institutional investors should still be able to provide risk capital – except for perhaps pension funds which have been weakened by demographic developments. Finally improving governance and reducing excessive risk taking are important but challenging tasks. More active and involved shareholders could further these goals but such participation will be hard to achieve. Therefore transparent bonus and remuneration plans are perhaps the most important initiatives for preventing future systemic financial crises.