Meanwhile, central banks must better understand the incentive structures in the financial industry, and ponder if their actions might be distorting incentives, giving rise to modalitydriven innovations that hardly benefit the society as a whole.
Doing so should allow us to avoid those policy decisions – for example, maintaining excessively loose monetary policy for too long or offering too wide a safety net through the lender-of-last-resort function – that inadvertently add momentum to such developments.