The sector is in a phase of downsizing and structural change that will inevitably affect financial intermediation going forward. To think about how this will impact European and global growth, I think it is useful to recall an ancient Chinese fable. The fable is about a boy who lived near China’s northern borders, and whose horse one day wandered off into the territory of the northern tribes. Everyone commiserated with him for his misfortune. But not his father, a well-practiced Taoist. “Perhaps this will soon turn out to be a blessing,” he said. Then, a few months later, his horse returned, accompanied by a fine horse from the north. Everyone congratulated him for his luck, but his father was more sanguine. He remarked, “Perhaps this will soon turn out to be a curse”. The boy quickly became fond of riding the fine new horse, then one day out riding, he broke his leg in a nasty fall. Everyone again commiserated with him. But once more his father disagreed. “Perhaps this will soon turn out to be a blessing,” he said. Soon after, the northern tribes invaded the border regions. All able-bodied young men took up arms to fight the invaders, and nine out of ten died. Due to his broken leg, however, the boy did not join in the fighting. He and his father therefore survived.
10  Adelino, M., Song, M. and Robinson, D. (2014), “Firm age, investment opportunities and job creation”, NBER Working Paper 19845, January. 11  The Financial Stability Board defines shadow banking as “credit intermediation involving entities and activities outside the regular banking system”, a definition which ranges from more transparent and regulated entities such as institutional investors and money market funds to highly complex and unregulated entities such as structured investment vehicles and special purpose entity conduits. 12  “Finance for Growth”, Report of the High Level Expert Group on SME and Infrastructure Financing, December 2013. 6  BIS central bankers’ speeches  quality securitisation in Europe, which the ECB and the Bank of England have been jointly pushing.13 Securitisation has the double benefit that it not only encourages existing originators to extend more SME loans, but to the extent that it partially removes credit risk from bank balance sheets, it may also help smaller, less diversified originators to enter the SME loan market. In this way, it could also mean that SME lending is less dependent on a few large banks in each country. It is worth reflecting, however, on what the new normal should be once the credit cycle picks up. On the one hand, there clearly benefits to having a more balanced financing mix. It is useful not only to provide a cyclical cushion in bad times, but also to increase market contestability and reduce over-banking in normal times.