Consumer protection also has a high risk of being captured by the political cycle. This could be specially damaging in the financial system – and therefore every effort should be made to make the institutions safeguarding financial consumers autonomous and technical. For macroeconomists and financial economists, today it is difficult to focus on something other than the European crisis. The health of the global economy depends on a good resolution to this crisis. However, we cannot forget the duty of building a safer and fairer financial system. Today we have the opportunity to tackle this task, but we also have to avoid shortcuts that may end up rebuilding a weaker financial system. 3  References Arcand, Jean-Louis, Enrico Berkes and Ugo Panizza (2012), “Too Much Finance?,” International Monetary Fund Working Paper, WP/12/161. Cecchetti, Stephen and Enisse Kharroubi (2012), “Reassessing the Impact of Finance on Growth,” mimeo, BIS. De Gregorio, José and Pablo Guidotti (1995), “Financial Development and Economic Growth,” World Development, Vol. 23, No. 3, pp. 433–448. Diaz-Alejandro, Carlos (1985), “Good-bye Financial Repression, Hello Financial Crash,” Journal of Development Economics, Vol. 19, Issues 1–2, pp. 1–24. Dooley, Michael P. and Michael M. Hutchison (2009), “Transmission of the U.S. Subprime Crisis to Emerging Markets: Evidence on the Decoupling-Recoupling Hypothesis,” NBER Working Paper 15120. Korinek, Anton, Agustin Roitman and Carlos A. Vegh (2010), “Decoupling and Recoupling,” American Economic Review, Papers and Proceedings, pp. 393–397. Levine, Ross (2006), “Finance and Growth: Theory and Evidence,” in Philippe Aghion and Steven Durlauf (eds.) Handbook of Economic Growth, pp.
2  It is easy to put the blame on the behavior of the financial industry, but the policy implications are not straightforward. But from the three points I have raised – misbehavior of market participants, comprehensive capture, and policymakers’ indifference – there are three simple conclusions: we need tight regulation, transparency and disclosure of conflicts of interest, and permanent monitoring of financial stability. What else may go wrong? Financial systems in emerging markets escaped from the crisis due to some extent to prudent regulation, built on a history of recurrent crises. But perhaps it was also due to the fact that we are somewhat slow to adapt to financial innovation. Indeed, many issues, such as the use of derivatives by the banking industry, were being discussed in emerging markets on the eve of the crisis. Of course, we are much more aware of the risks of financial innovation. It is particularly important to understand innovations – something that I think very few understood before the crisis. A simple rule for policymaking is that if you cannot understand what is really being proposed and you do not see the benefits, it is better steer clear. We used this simple dictum at the Central Bank of Chile. Not everything is bright in emerging markets. There are many challenges. One issue that has not been a problem so far, but presents potential risks, is the role of public banks.