The large banks and their networks that know they will be bailed out by governments if ever faced with solvency issues have an incentive to take on greater risk than a bank or intermediary that fails with no entity to save it.” 1 In a nut shell: these shortcomings jointly allowed the entire financial industry to book profits too early, too easily and without proper risk adjustment.
Global integration, productivity and technology, governments’ fiscal and regulatory policies, changing demographics, consumer preferences and climate, and unanticipated events – including political volatility – play the dominant role in long-term prosperity. Central banks operate within this context and need all policy levers working.