3  This problem is known in the technical literature as the “time-inconsistency” problem; this literature was pioneered by Kydland and Prescott (1977) and Calvo (1978). This problem is analyzed in the context of monetary policy by Barro and Gordon (1983). 4  Ricardo (1824, p. 506).
A recent ECB study on EU banking structures (ECB, 2010) highlighted that the inappropriate assessment of the risk characteristics, and thus the un-sustainability, of the observed ROE ratios led to huge losses in the recent crisis. Averaging the ratios over time to include the crisis years shows that the effective ROE of banks and other financial institutions was much lower than previously thought.