This view is consistent with the Congressional emphasis on financial stability and systemic risk considerations in the Dodd-Frank Wall Street Reform and Consumer Protection Act.10 To be sure, idiosyncratic problems such as certain operational risks may threaten large institutions, and traditional regulation and supervision surely have an important ongoing role to play.
When the day of reckoning comes, the loop will work in reverse. The pre-crisis consensus view requires at that point an extremely accommodative reaction by the central bank. Undoubtedly, this kind of monetary policy gives the illusory impression that structural adjustments can be postponed or, worse, are not necessary at all, thus paving the way for a second boom and bust.