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And this quest for shareholder returns was in turn aided and abetted by creditors who, far from pricing this rising risk, charged a low and falling interest rate to the banks, further fuelling risk-taking incentives. This risk-shifting crystallised as the crisis broke. At that point, yields on bank borrowing shot up and risk-taking was crushed. Creditors bore large losses, which would have been larger still without government support. This experience makes clear that risk-shifting is not a theoretical phenomenon; it is very much real, with large costs for creditors and for the wider economy. Indeed, the welfare implications of risk-shifting are doubly troubling. Not only does it generate excessive risk-taking and credit creation during upswings. As importantly, it also contributes to excessive caution and a credit crunch during the downswing. Risk-shifting results in twosided deadweight costs, for creditors and for the macro-economy. 19 Both have been much in evidence over recent years. (b)  Risk-alignment  A related, but distinct, micro-economic risk friction concerns how rights are allocated to different stakeholders in a company. Standard corporate finance theory sets out, on the face of it, a coherent allocation of control rights and risks. Shareholders have a junior claim on the profits of a company, in that they are paid out after employees, creditors and the taxwoman. Theirs is the riskiest piece of the profits pie. This means “ownership” is really a misnomer when applied to shareholders. What defines shareholders is not that they own most or all of the company.