Financial deepening, by allowing greater diversification of risk and making finance accessible to larger numbers of countries and firms, can be instrumental to broadening economic development. But there is a risk that finance turns into an end in itself, with consequences that can be more damaging as the system becomes more interconnected and the potential for externalities increases.
At the same time, the interaction between monetary policy and financial stability becomes more relevant as heightened financial complexity amplifies the widespread non-linearities in the dynamics of financial and economic variables and the consequences of interconnections between the financial and the real side of the economy. In these conditions, the risk of systemic crises increases.