The possibility of taking out a loan expands this limit by adding anticipated future income to the resources available for spending. Why can this be a good idea? The somewhat banal answer is because making certain purchases or investments before having saved up the required amount can have a beneficial effect. Here are a few examples to show that this holds true from the point of view of companies, households and governments. Let’s start with the example of a start-up by a university of Berne graduate. This graduate has come up with a brilliant idea for a new product. To develop and produce it, she needs capital. She herself has no savings and it would take her decades to accumulate the required amount 1 2 3  Cf. Graeber (2011) and Grossman (2010) and the sources they cite. Cf. Grossman (2010) and Ferguson (2009). The focus hereby is on the monitoring of borrowers and on risk management. Page 3/16  on her own. Under these circumstances, she would probably give up on the idea. The possibility of obtaining credit radically changes the situation. A loan enables her to realise her idea within a short time and generate income with the sale of her product. 4 The example shows how loans make it possible even for firms with little capital to make investments that will generate income in future. In the best case scenario, such investments also drive technological progress.
Third, that the system does not do business and exist on the basis of an implicit commitment that the State will have to use public money, the public’s money, to bail out firms that get into trouble. And fourth, that the public can place trust in firms and markets based on their reputations and the transparency of their dealings. Regulation is important and it can help to foster that trust, but it cannot substitute for the trust that the public needs to have, in firms and markets. The State is not there to support the industry, and regulators are not there to substitute for trust in and the reputation of firms and markets. Some important principles follow from the identification of the public interest in financial stability. First, a competitive financial system can only exist if it is rooted in stability: competition and stability cannot be traded off in a binary sense. Second, the public should not define financial stability as preventing all financial firms from failing. In other sectors of the economy firms fail without putting at risk the funds of the public or taxpayers’ money. We will not truly have solved the too big or important to fail problem and thus the public money problem until we have tools at our disposal which enable us to resolve large institutions if they get into trouble. This will create the right incentives for risk management. And third, regulators must use their judgement to mount a robust challenge to stop dangerous business models and investment practices.