One such approach compares equity market valuations (namely earnings-price ratios) to the return on fixed-income securities, generally the 10-year US Treasury bond. But many observers have suggested that this measure of the “correct” stock market valuation may no longer be accurate.
Similarly, I think that in the financial services industry there should be a more diversified division of labor, not only within each financial group, but also among a wide range of economic agents with substantial expertise in the development and sale of financial services as well as in risk-taking methods. Under such a system, institutions with superior monitoring capability should focus on extending loans.