Although they were subject to financial regulations at that time, many of them simultaneously became overconfident about future financial stability and held optimistic views on risk. Such risk perception led to credit expansion and asset price increases in a synergetic manner.
In the wake of the subsequent Great Financial Crisis, financial authorities established the macro-prudential regulatory framework, which put in place more stringent rules regarding the appropriate consumption of a public good (i.e. financial stability). While regulations on banks were strengthened after the Great Financial Crisis, nonbanks such as investment funds expanded their presence in the market of "credit intermediation," mainly in US and Europe.