They also include the undesirable pro-cyclical effects of prudential rules, of accounting rules, of credit rating agencies, and of compensation systems that put undue emphasis on short-term earnings.
On this last point, I will say that the so-called bonus culture is one of the many factors that can drive the financial system in the wrong direction – away from intermediation to selfreferential speculation; away from medium-term stability to short-term orientation; and away from being a service sector to being a self-serving sector.