of selected euro area countries. omt has worked and remarkably, there has so far not been any need to activate the program. rajan, r. ( 2013 ), a step in the dark : unconventional monetary policy after the crisis. andrew crockett memorial lecture, bis, 23 june 2013. speech by mario draghi, president of the european central bank at the global investment conference in london 26 july 2012 ( www. ecb. europa. eu / press / key / date / 2012 / html / sp120726. en. html ). bis central bankers ’ speeches finance and growth thinking with hindsight about the causes and possible early indicators of the financial crises, one thing seems clear. the financial sector, including banks, grew to a very large scale in many countries. recent research suggests that when the financial sector grows rapidly into large proportions, the risk of a serious crisis is heightened. 3 [ figure 2 : rapid growth in the eu banking sector pre - crisis ] before the crisis, the consensus view from the finance and growth literature was that financial development not only follows economic growth but contributes to it. however, after the financial crisis, the darker side of the financial sector growth has received increasing attention. the traditional benign view of finance and growth is that a growing financial sector improves overall economic growth opportunities by mobilizing resources to finance investment projects and by facilitating risk management. the key assumption is that a well - developed financial system helps allocate productive resources more efficiently, both by channeling funds to growth sectors and by pulling resources from declining ones. correspondingly, research has argued that low financial development could be a factor which reduces long - run growth and also increases growth volatility. 4 however, some recent research by cecchetti and kharroubi at the bis suggests that while finance does contribute to economic growth, it does so only up to a point. 5 [ figure 3 : finance and growth ] at the level of individual financial institutions, the growth of bank balance sheets was seen as reflecting increasing returns to scale and scope from combining a wide variety of financial services and providing them also cross - border to internationally active clients. technological development and financial innovation enabled the creation of totally new products. these were initially seen as filling gaps in the palette of risk management products and creating totally new segments of the financial markets. 6 today we know that many of the new exciting risk management products increase rather than reduce risk, when applied inappropriately. moreover, the changing

shape of financial intermediation and risk management made the whole financial system more vulnerable to common shocks. in the crisis the ultimate risk stemmed largely from the us housing market, but it had been transferred also onto european banks ’ balance sheets. 7 this took place with the help of securitizations and the related new financial intermediaries, generally dubbed as the shadow banking sector. as a result, the number of counterparty relationships and the ensuing counterparty risks increased. the global financial network became highly interconnected and complex. see e. g. claessens, kose, laeven, and valencia ( 2013 ), “ understanding financial crises : causes, consequences, and policy responses ”, cama working paper 05 / 2013. see e. g. aghion, p., e. farhi, e. kharroubi ( 2012 ), “ monetary policy, liquidity, and growth ”, and the literate cited therein. cecchetti and kharroubi ( 2012 ), reassessing the impact of finance on growth, bis working paper 381. rajan ( 2006 ) has finance made the world riskier? european financial management, vol. 12, no. 4, 2006, 499 – 533. see also bolton, p. ( 2013 ), the good banker. shin ( 2012 ) : “ global banking glut and loan risk premium ”, imf economic review, 60. bis central bankers ’ speeches many of these developments prior to the crisis did not benefit the real economy in a sustainable manner. as suggestive evidence of this, economic recovery from the crisis has been slow. 8 one important lesson from the crisis is the need to understand better the point where and why the expansion of the financial sector, or any of its particular business areas, turns excessive. moreover, we need to ensure that financial innovations such as securitization are applied appropriately so that the benefits are realized. reasons for excessive financial growth why did the financial sector this time grow so much? and why was it especially hazardous? certainly, there were global macroeconomic reasons behind the recent crisis developments, and problems with regulation and supervision in failing to see potentially dangerous market failures. global imbalances provided a fertile ground for the development of financial excesses, as capital inflows to the united states pushed long - term interest rates down. 9 moreover, the monetary policy stance was accommodative in much of the early