The benefits of a more stable and resilient financial system, by contrast, can be reaped only over the longer term and are more difficult to quantify. Direct costs of compliance need to be distinguished from the costs of crises that are borne by market participants. The bailout of banks during the crisis shifted private costs to taxpayers and raised levels of public debt worldwide.
Reforms thus seek to realign incentives by withdrawing implicit public guarantees. As a result, risk taking on the part of banks may decline, allocation of credit may change, and costs of debt may increase, because creditors cannot rely on bailouts and thus demand higher risk premia. Profits in the financial sector may decline as a consequence of reforms.