Clients were replaced by counterparties, and banking was increasingly transactional rather than relational. These attitudes developed over years as new markets and instruments were created. The initial motivation was to meet the credit and hedging needs of clients in support of their business activities. However, over time, many of these innovations morphed into ways to amplify bets on financial outcomes.
Let us take a short look at the national level. When the euro-area crisis began five years ago, many people referred to it as the “euro crisis”. However, it was not a currency crisis but a cocktail consisting of a debt crisis, a banking crisis and a balance of payments crisis.