If it is structured correctly, each form of intermediation will not be subject to the same risks. Diversity also allows risks to be more closely aligned with risk-bearing capacity in the system. With scope for creditor preferences to be more closely matched with those of borrowers, the full potential of finance to intermediate can be exploited and the cost of finance for the real economy minimised. If we can succeed in safely and sustainably combining bank and market-based finance, the effectiveness of the system can be dramatically increased. Households and businesses can benefit from access to markets while the advantage of banks in originating loans can continue to be exploited. A trusted financial system can be much more effective. Through cultural change, reforms to compensation and building markets that are transparently fair, finance can earn the legitimacy needed to operate and innovate to serve customers and clients in the real economy. The literature on the benefits of an open global financial system is admittedly mixed. The contradiction between this conclusion and the clear and overwhelming benefits of trade integration is reconciled by the previous unsafe and potentially unstable nature of the global  14  BIS central bankers’ speeches  system. As my colleague Andy Haldane observed recently, connectivity can serve as a shock-transmitter.30 A risky system cannot be an open system. The renewal of globalised finance must therefore go hand in hand with making the global system safer, including through mutual trust and cooperation between supervisors and regulators.
The issue is with the barrels in which they are stored.20 Leaders and senior managers must be personally responsible for setting the cultural norms of their institutions. But in some parts of the financial sector the link between seniority and accountability had become blurred and, in some cases, severed. The public were rightly angered that so many of the leaders and senior managers who were responsible for sowing the seeds of the crisis and for allowing cultures to develop in which gross misconduct took place have walked away from their actions or inactions. In the UK, Parliament has established a stronger regulatory framework to allocate responsibilities to individual executives and board members and to give regulators the tools to hold them to account. The excuse of having delegated a responsibility simply will not wash. The public bail outs and the fact that few of the consequences of scandal have been borne by those who were directly responsible revealed a great deal about the balance of risk and rewards for those who worked in in financial services. Compensation schemes overvalued the present and heavily discounted the future, encouraging imprudent risk taking and short-termism. To align better incentives with the long-term interests of the firm – and, more broadly, society – major changes have been made. At the request of G20 Leaders, the FSB has developed principles and standards for sound compensation practices. 19  Chart 13 shows the sharp increase since 2010 in the number of FICC-related misconduct fines.