For institutions that we supervise, these incentive issues can also be addressed by requiring that lenders set up compensation plans for originators that induce behavior consistent with safety and soundness. Where does all this leave us?
It seems clear that the difficulty of managing financial innovation in the period leading up to the crisis was underestimated, and not just in the case of consumer lending. For example, complexity and lack of transparency have been a problem for certain innovative products aimed at investors, such as some structured credit products.