A key lesson of the last decade, also supported by an increasing number of theoretical and empirical analyses, is that too low for too long interest rates can stimulate risk taking and sow the seeds for the next crisis if left unchecked by regulators and markets alike.
We need providers of finance, be they banks, so-called ‘shadow banks’ or capital markets, that have ample capacity to bear losses when things go wrong – because sooner or later some things will. With that framing, two questions to ask are: •  What shocks are we grappling with at present?