had asked respondents to name those five professions for which they have the highest respect. 6 the results of the survey found the respect for “ bankers and bank employees ” ranking at the bottom. even the profession of “ politicians ” was considered more – albeit marginally – respectable. only “ tv moderators ” fared inferiorly to bankers. such a derogatory view of the financial industry is not a new phenomenon, though. churchill apparently uttered in 1925 that he “ would rather see finance less proud and industry more content. ” currently no exact definition of the “ shadow banking system ” exists. according to the fsb, it can broadly be described as “ credit intermediation involving entities and activities outside the regular banking system ” ( see shadow banking : strengthening oversight and regulation, recommendations of the financial stability board, 27 october 2011 ). financial stability board : key attributes of effective resolution regimes, 4 november 2011. see frankfurter allgemeine sonntagszeitung, 30 october 2011. bis central bankers ’ speeches the negative perception of the financial industry often focuses on compensation practices. in fact, commentators have frequently expressed their scepticism on whether the activities of bankers and market players deserve those high wages and bonuses compared to the economic rewards earned in other industries. already keynes wondered “ … how long will it be necessary to pay city men so entirely out of proportion to what other servants of society commonly receive for performing social services not less useful or difficult? ” it is by now well understood that excessive wage and bonus packages in some segments of financial markets have encouraged irresponsible risk - taking. thus, incentives were set inappropriately. against this backdrop, it comes as no surprise that the overhaul of compensation practices in the financial sector appears to have dragged the most broadbased public attention among all the components of the financial sector reforms. let me remark en passant that for improving financial institutions ’ own corporate governance as well as its public acceptance it will be key that compensation schemes will set incentives to take into account the long term viability and success of such institutions. this includes internalising the repercussions of the risks involved, and not just the maximization of the short term profit objectives. while the growth of wages and compensation in the financial sector is striking, it is not the only dimension at which the financial industry is being criticized to have “ outgrown ”. let me illustrate this with some key figures. a telling measure of the size of the financial sector is given by

the share of stocks, bonds and loans to the private sector as a percentage of gdp. with the exception of japan, this measure has also trended upwards in major oecd economies. this measure of the size of the financial sector stood around 430 % of gdp in the united kingdom, 315 % in the united states, and 262 % in the euro area, averaged over the period 2005 to 2009. 7 finally, the so - called shadow banking system has been likewise growing rapidly before the crisis. estimates of the assets in the shadow banking system, based on a proxy measure for non - bank credit intermediation for australia, canada, japan, korea, the united kingdom, the united states and the euro area, saw a rise from $ 27 trillion in 2002 to $ 60 trillion in 2007. following a slight subsequent decline, that number stood again at a similar magnitude in 2010. 8 the two or three decades before the crisis have seen a strong increase of the financial sector in advanced economies. viewed together with the negative experiences of the recent financial crisis, it is thus tempting to assert that the financial sector has in fact grown out of proportion. in what follows, i will address this assessment in more detail. the idea that “ too much finance ” can be detrimental for economic growth, has found some empirical and theoretical confirmation in the academic literature. 9 it evidences a nonmonotonic relation between the size of the financial sector and average growth : if the size of the financial system exceeds a certain threshold, it may have a negative growth impact. one mechanism behind such pattern may be that a larger financial sector would contribute to exacerbating the positive relation between average growth and the probability of sizeable economic downturns. another explanation would be that even in tranquil times, an oversized financial sector may represent a misallocation of financial and human resources that could be better utilized elsewhere in the economy. clearly, further research is needed in this respect. this regards in particular a characterization of the optimal size of the financial sector. nevertheless, it should be already clear that it cannot be the sheer scale of activity in the financial sector per se that matters for growth and economic welfare, but rather the types and qualities of financial sector activity. the figures are based on calculations using data from wfe, imf, datastream and eurostat. financial stability board ( 2011 ), “ shadow banking : strengthening oversight and regulation ”, october 2011. see, e. g., arcand, j