BIS central bankers’ speeches  3  A defence of regulatory reform The beneficial impact of regulation on growth Financial institutions support and foster economic growth by intermediating savings and allocating them to productive activities. 5 These functions are also their inherent sources of financial fragility.
Regulation plays a key role in reducing the scope of financial fragility and limiting the costs of financial instability. Hence, a well-designed regulatory framework can actually lead to faster average economic growth over time. There is vast academic literature that tries to empirically identify the impact of financial deepening (measured by the ratio of credit to GDP) on long-term economic growth.