In the 1930s, banks dominated the financial system, and a framework of regulation on banks was seen as the best way to ensure financial stability (and to operate monetary policy). Today we realise that heavy regulation stifles competition and innovation, and is an ineffective mechanism for monetary policy – even though it can achieve a high degree of financial stability.
We also recognise today that, while banks remain at the core of the financial system, financial markets – and by this I mean the money, debt, equity, derivative and foreign exchange markets – play a much bigger role than they did in the 1930s.