Some of the divergence appears to be the result of an increased volume of stock option exercises in early 2006 - an occurrence captured by the compensation per hour measure but not by the ECI - and these option exercises should not represent costs that firms actually internalize when calculating their marginal cost of production.
In the longer term, we need to reverse the unwelcome trends in banking documented by the ESRB. We need a banking system that is better capitalised, less concentrated, less procyclical, and relatively smaller than it is today. Thus, we need a financial structure in which financial markets play a larger role than today in allocating funds to final customers. How to get there?