Three years on, the crisis is still with us; it has just shifted geography. And there is still enormous uncertainty about when we might see its end and with what final tally of costs in terms of lost output and foregone welfare. So, the emphasis of post-crisis regulatory reforms on making the financial system stable is understandable.
But a relevant question is, where do we strike the balance between growth and stability? In other words, how much growth are we willing to sacrifice in order to buy insurance against financial instability? For illustrative purposes, let us take the Basel III package.