These trends however saw the start of the erosion of the linkage between finance and the real economy, sowing the seeds of financial activity that would become inherently unsustainable. In several parts of the world, finance progressively deviated from long-term value creation towards the pursuit of short-term returns. Banks’ trading and fee-generating activities became much more lucrative than traditional lending activities. This in turn spurred innovation in financial services that became more and more removed from the service to society and the economy. During the period just prior to the global financial crisis, domestic credit provided by the financial sectors such as in Iceland and the US, which had previously averaged 48% and 149% of GDP respectively, had become decisively decoupled from, and had far outstripped real economic activity. Domestic credit by the financial sectors in Iceland and the US had by 2007, risen sharply to 299% and 236% of GDP respectively. The experience of the global financial crisis highlights the potential for the benefits of finance to be dramatically reversed, resulting in destructive rather than constructive effects of finance. Several studies have shown that the marginal returns to growth from finance diminish at high levels of financial development. In other words, there can be “too much finance” where the costs to growth and stability outweigh the benefits of financial development. Similar to other booming industries, the financial sector at the height of its exuberance showed an overinvestment of resources in terms of capital including human capital which only became apparent after the bust.

This became the bedrock upon which the Netherlands evolved to become the foremost maritime and economic power in the world during the Dutch golden age. It was also the financial revolution of pre-modern Britain that provided the foundation for the industrial revolution to take effect in the 18th to 19th centuries. A more recent observation unfolding is the experience of China, where the process of financial intermediation has been key for the infrastructure development that has propelled China’s economic growth story that began in the 1980s. In the process, it has lifted millions from extreme poverty. Though these are distinct experiences separated by chasms of geography and history, finance was a common and powerful component of the overall rise of these economies. More recently, this transformative role of finance can also be observed in  BIS central bankers’ speeches  1  the many emerging economies in different parts of the world in the 20th century as they transitioned to becoming a significant and important component of the global economy. Further, as the regional and international dimension of finance increased, this globalisation of finance facilitated greater cross border trade and investment activities. In this recent two decades however, finance has progressively evolved from being a means to an end, to being an end itself. The role of finance shifted from being an enabler of growth to an engine of growth in its own right. In the more globalised world economy, financial centres also flourished to become an important source of national income and wealth.