For instance, tightening risk weights arguably tempers the flow of credit to certain sectors, but excessive, premature, or unnecessary tightening can blunt growth. Similarly, exposure norms offer protection against concentration risks; however, such limits can restrict the availability of credit for important growth sectors.
Thus, as in the case of price stability, central banks face the challenge of managing the trade-off between financial stability and growth. After a crisis, with the benefit of hindsight, all conservative policies appear safe. But excessive conservatism can thwart growth and stifle innovation.