4 The contribution of the financial sector to household risk management and business investment, as well as the significant contribution of financial-sector development to economic growth, has been documented in many studies. 5 Such research shows that, across countries and over time, financial development, up to a point, has disproportionately benefited the poor and served to alleviate economic inequality.
6 Distorted incentives in the financial sector Despite these benefits, as we have seen, actions by financial institutions have the potential to inflict harm on society. Instead of promoting financial security through prudent mortgage underwriting, the financial sector prior to the crisis facilitated a bubble in the housing market and too often encouraged households to take on mortgages they neither understood nor could afford.