The fact that it has failed, triggering heavy costs to the society, leads to deep public anger and resentment. “While anger and resentment may be useful spurs to action” – to quote Andrew Crockett (2011) yet again – “they are much less helpful in shaping a balanced response to the crisis that both safeguards society against financial fragility and preserves the contribution that the financial sector makes to high quality sustainable growth”. Indeed, the crisis response so far has perhaps focused too much on preventing future financial crises and neglected the fact that robust economic growth is simply not possible without the contribution of the financial system. III.1. Why did the markets not deliver? Nowadays the financial sector tends to be associated with its negative externalities, while ignoring the essential function it performs in the economy. These negative externalities refer to both the direct cost of bailing out financial institutions and the indirect cost of the ensuing economic recession. Overemphasizing negative externalities may lead however to regulations that excessively limit risk-taking, which is unavoidable if the financial sector is to stimulate private saving, enhance allocative efficiency and help smooth out economic fluctuations due to non-financial causes. In theory, in the banking sector, stakeholders’ interest should ensure that credit standards, risk management and controls, and capital cushion remain adequate, as fund providers would penalize managers who run excessive risks. In securities markets, long-term reputational concerns should have overcome incentives to exploit short-term information asymmetries.

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