Yet at the same time, the fundamental role of banks in the economy has not changed: the banking sector is there to channel savings towards productive investment and thus to serve the real economy. The “old normal” was characterised by a long period of low macroeconomic volatility, sustained economic growth, historically low credit and liquidity premia, and rising asset prices.
All this came against a background of light-touch regulation. The financial crisis has led to much-needed and far-reaching reform of the regulatory framework and a redesign of the supervisory architecture. But while we may have left the ‘old normal’ behind us, the “new normal” is still surrounded by substantial uncertainty.