At the same time, there was a group of very large, significantly leveraged "free-standing" investment banks whose market practices were regulated by securities laws, but were not subject to prudential regulation. The imperative of regulatory reorientation There were, of course, many ways in which this financial regulatory system fell short of the objectives of maintaining stability in the financial system.
Any one explanation inevitably oversimplifies what was a complex and long-developing set of vulnerabilities. However, as I have earlier suggested, I believe an analysis can be profitably organized around the premise that the regulatory system did not come close to adequately accounting for the impact of trading and capital market activities on both traditional banking and systemic risk.