As a historical note, this provides one explanation for the Federal Reserve’s tolerance of such high inflation at the time. The disinflation after October 1979, carried out by the Federal Reserve under the leadership of Paul Volcker using words, procedures, and actions that were a sharp break from the past, produced a much lower cost of disinflation than policymakers had anticipated during the 1970s.
It will be particularly important to strike the right balance between ensuring fair competition by treating the same risks equally and, at the same time, allowing for varying market and banking structures as far as these cater for the heterogeneous needs of the real economy. However, this supervisory approach must not exist only on paper, but must also be infused with life.