The lending booms we experienced in some euro area countries before the crisis are a good illustration of the problems arising from an excessive reliance on this micro-prudential approach. During the upswing, banks reported high levels of profitability and low levels of measured risk.
With developments in capital market and establishment of rating agencies, corporates and development financial institutions themselves started taking recourse to debt, since the reform commenced. More recently, special purpose vehicles to fund infrastructure promoted by some State Governments have come to the fore especially since they are backed by State Government guarantees.