That is, creating wealth is risky. Hence banking, to further its primary economic purpose of financing the economy, cannot and should not avoid prudent risk-taking. Bank supervisors, in turn, need to recognize that the optimal bank failure rate is not zero.
A zero failure rate over time implies either extraordinary insight by bankers, a notion I readily dismiss, or an undue and unhelpful degree of conservatism in banking practice. In taking on risk, of course, some mistakes will be made, and some banks will fail. Even if a bank is well-managed, it can simply become unlucky.