Turning to the developments in the banking sector, let me recall that the size of the financial systems dramatically increased during the past few decades both in Europe and in the US.3 To judge whether the financial sector has grown “too large”, it is crucial to answer the question of whether or not the expansion of finance before the crisis was driven by fundamentals.
On the one hand, it is clear that this process was fuelled by fast economic growth and a rapid accumulation of savings in emerging markets. On the other hand, developed countries engaged in rapid innovation in the field of financial products, which allowed the more efficient channelling of domestic and global savings towards productive investments.