At the same time, it would help policy makers and regulators to understand where the risks are located and thus monitor the accumulation of imbalances. Finally, the third factor I want to mention is the excessive pro-cyclicality of the financial system. We need to introduce a framework to dampen this phenomenon.
There seems to be an inherent tendency for financial systems to cause periods of booms, by building up imbalances, and then to go through busts – the rapid and disorderly unwinding of these same imbalances. The challenge is to preserve an efficient financial system as an engine for economic growth and at the same time to ensure its stability.