In addition, if banks are safer, then, all else constant, some of the incidence of high cost of financial intermediation should also fall on the owners of bank equity who should be willing to accept lower returns. But, of course, the story does not stop here.
Lower returns on equity are likely to increase the incentive for bank management to take on new risks in an attempt to regain earlier rates of return. Lower rates of return may also lead to renewed efforts at cost cutting. This could have some positive effects, but if it were to involve cuts to the risk-management function, cost cutting could create new risks.