In particular, we have seen that an oversized financial industry tends to exacerbate information asymmetries, moral hazard problems, and the hunt for yield, leading to excessive risk-taking and over-leveraging of the system. The events of 2007–2008 suggest that when financial sectors are “too large”, the allocation of resources may become inefficient.
Examples of such misallocation were abundant during the dot-com  3  Rajan, R., and L. Zingales, 1998. Financial dependence and growth. American Economic Review 88, 559–586. 4  Wurgler, J., 2000. Financial markets and the allocation of capital. Journal of Financial Economics 58, 187–214. 5  Philippon, T., and N. Veron, 2008. Financing Europe’s fast movers. Bruegel Policy brief 2008/01.