However, if inflation expectations were to follow experienced inflation, households and firms would additionally seek compensation for expected future losses as well.
Investors and customers need confidence that banks are managed prudently. These aspects have gained a lot of attention in the aftermath of recent scandals, such as the manipulation of LIBOR and similar financial benchmarks. These cases of misconduct spoil confidence in a twofold way. Firstly, the trustworthiness of banks involved is impaired. And this has negative consequences for the banking sector as a whole.