Having seen the virtues of the reform process in terms of their eventual impact on growth, let us now take a look at the risks that they introduced into the system. Competition is, of course, an inherently risky process and the failure of individual businesses in an intensely competitive environment is only to be expected.
However, we need to avoid that reforming regulation on banks increases the incentives for risky leverage build-up outside the banking sector. Non-banks and market-based financing expanded enormously and their role in financing the economy continues to grow at a fast pace. This diversification of finance sources has many positive aspects.