A pertinent example is provided by the banking sectors of certain countries that were under tight public control in the past, at least partly for prudential reasons, which were stable, but probably not very efficient in terms of cost control or funding of real investment. 14 To mention an extreme case, the Soviet banking system was certainly stable, but it was not efficient.
When excessive forms of regulation and control are abolished, the productive efficiency of banks is likely to be enhanced. In the short run, however, such deregulation may undermine the profitability of less competitive banks and therefore their resilience to shocks. The market process can thus lead to the removal of inefficient banks to the benefit of the more efficient ones.