Collective and public action comes into play when market forces alone are incapable of removing inefficiencies – on account of “network externalities”, for example . The existence of network externalities has two implications: Firstly, national financial infrastructures have developed individually over a period of decades. Changing these structures is often associated with switching costs – at least in the short run.
Secondly, however, in the long run the positive externalities of integrated financial markets outweigh the costs of switching from one institutional arrangement to another, so collective or public action may be necessary to achieve more efficient outcomes. Moreover, frequently collective action is crisis-driven – which reflects a somewhat pathological learning on the part of market participants.