which in many cases continue to build on the assumption that the pre - crisis environment will return – are still a drag on the resilience of the financial system. thus, while finance - led growth might be intuitively appealing, pursuing it once again would seem to fit our definition of insanity above. 3. how much is enough? more finance is not a panacea nevertheless, policymakers are looking for solutions. unfortunately, some still think that more finance is a sound way to ignite investment and development. such a finance - led growth policy emerged as the dominant political strategy in the 1980s. that meant that financial deregulation was high on the agenda to foster financial development. and theory appeared to support this intuition, with studies showing that financial development corresponded strongly with economic growth. 4 but, while finance seemed to be conducive to economic growth in the early stages, it also had serious negative repercussions for the economy. we learned the hard way that more finance is not a panacea! for two reasons : first, more credit and finance tend to lead to more frequent and more severe financial crises. 5 excessive credit creation increases the fragility of the imf world economic outlook, update april 2016. see also mckinsey ( 2015 ), debt and ( not much ) deleveraging. r levine ( 2005 ), finance and growth : theory and evidence, in : handbook of economic growth. a turner ( 2015 ), between debt and the devil : money, credit, and fixing global finance, princeton university press. bis central bankers ’ speeches financial system and the likelihood of financial crises. and the bigger the mountain of debt, the more severe post - crisis recessions tend to be. 6 moreover, financial turmoil is not the sole possible outcome of excessive debt. the second reason why more finance is not a panacea is that leverage seems to hamper economic growth once it exceeds gdp levels of around 90 to 100 per cent. recent evidence reveals that there is indeed such a thing as too much finance. 7 financial depth starts having a negative effect on output growth once credit to the private sector reaches 100 per cent of gdp. most advanced countries exceeded this level prior to the financial crisis – and continue to do so. recent studies found even lower thresholds at which financial deepening unleashes negative effects. in a bank for international settlements working paper, cecchetti and kharoubi found that the effects of credit on gdp growth turn

and strengthen market forces. this, in turn, puts more responsibility into the hands of banks. it is up to each individual bank to ensure its own stability and profitability. this requires the banks to rethink their business models and to rethink their culture. regulatory measures like tlac that will abolish implicit guarantees for banks will also necessitate changes in banks ’ behaviour for the better. the original role of banks is to service the real economy. putting this idea back into the heads of bankers would contribute greatly to making the financial system more stable. we have to do away with a culture in which everything is allowed that is not explicitly forbidden. we need a culture which encourages bankers to look beyond the horizon of short - term returns. if banks succeed in creating such a culture, they will eventually regain the trust of the people that got lost in the crisis. regulation and supervision can play a supporting role, but the burden ultimately lies with the banks. thank you. bis central bankers ’ speeches