Financial Markets and the Global Debt Crisis: Toward a New Architecture for A More Reliable Financial Sector

Abstract

The breakdown of the financial markets in 2007 and the ensuing debt crisis in the EU has produced enor - mous mistrust in financial products and the monetary system. The emergence of shadow banking also changed the behavior patterns of management so that its self-interest dominated the interests of sharehold - ers and the other stakeholders. These false incentives led to merger processes in the financial system result - ing in market structures in which single institutions became too big or too connected to fail. The empirical developments and the political counter-measures described in this article point to the fact that the macro- perspective has been dominant, neglecting individual irresponsibility and failure.