As the financial system begins to recover, it becomes clearer that two issues that need to be addressed by policymakers are the improvements to the regulatory mechanism and the shape of the financial system itself. The two issues are linked, and both are formidable.
While much has been written and debated about the best regulatory mechanism for finance, there is surprisingly little discussion about the shape of the industry. Partly no doubt this is because over the last several decades many of these "decisions" have seemingly been left to the market to resolve. Policy was seen as an unwelcome intrusion into the smooth functioning of markets.