8 The financial sector A third key weakness, which was identified early on,9 is that fast-growing financial sectors are very vulnerable, because they inevitably reflect lack of experience, by the commercial bankers, borrowers and prudential supervisors. Just as a rapidly-growing balance sheet is a warning sign for an individual financial institution, the same warning signs existed in these countries.
But even this was hard to foresee as a devastating problem. As a country moves away from under-developed financial “repression”,10 it is both inevitable and desirable that the depth of the financial sector increases - i.e. the balance sheets of financial institutions expand faster than nominal GDP. That said, of course there is an issue of “how much faster”?