To some extent, we do this over time by signalling to the market, through our actions, the kinds of circumstances in which we might be willing to intervene to quell financial turmoil, and conversely, what levels of difficulties we expect private institutions to resolve by themselves.
The market, then, responds by adjusting the risk premium addition to the riskless cost of capital available to banks. *  *  *  To return to the question I raised at the beginning: Can we learn to stabilize our burgeoning, sometimes frenetic, new international financial system so that we can realize its full potential?