Third, having made the case for extensive change, I want to add a cautionary note. Even as we improve and reorient regulation, we must not lose sight of the ultimate goal. Today we are all mindful of the economic devastation that can ensue when a financial system goes badly awry. But financial stability alone is not the aim of financial regulation.
If firms become fixated on maintaining all of their business lines, they will be slow to realign their business portfolios and will end up losing focus. As excessive costs build up and profits decline in such firms, growth in employee wages will end up being constrained, which will in turn increase concerns regarding the future.