If we want to address the causes of the financial crisis in full, supervision has to be taken one step further. In particular, systemic risk has to be identified and guarded against. This raises new questions, such as how systemic risk can be identified and whether the systemic relevance of an institution should be considered by introducing capital surcharges for systemically important banks.
The most troublesome aspect of many banking systems of emerging countries, to expand on the issue I raised earlier, is the widespread prevalence of loans driven by “industrial policy” imperatives rather than market forces. What is wrong with policy -- that is, politically-driven -- loans?