During the financial crisis and the widespread government bailouts it entailed, ”too big to fail” became a common term to describe implicit and explicit govern- ment guarantees of firms deemed integral to developed economies only because their failure would threaten economic collapse. The term also referred to the moral hazard of the creditors behind these firms who had the expectation of gov- ernment protection. By not facing any downsides to their investment, creditors were incentivized to capitalize these companies regardless of potential losses, by mispricing risks and allocating funds inefficiently. The impact of the following recession was not limited to the U.S., the crisis undermining the international banking system, as well as triggering global economic contraction and exposing sovereign debt crises throughout Europe. As a consequence, countries all over the world fell into recession, including the Euro Area economy as a whole. The danger of default threatened the financial system itself, as European banks held a significant part of sovereign debts. Had countries defaulted on those debts, the value of those bonds would have plunged to zero, pushing banks worldwide into insolvency with far-reaching consequences.

On top of bailing out several countries and instituting austerity programs to re- duce budget deficits relative to GDP by cutting budgets and raising taxes, the European Union also enacted several policy measures, including the creation of the European Financial Stability Council to mitigate the sovereign debt crisis by making emergency loans available to countries in financial distress. When it comes to the possible causes of credit growth, the same medicine cannot be applied to all maladies. Among others, financial stability instruments such as reserve requirements, dynamic provisioning, elevated equity ratio requirements, and tightening collateral requirements are among those measures that can be found in the policy toolbox to contain credit growth. Banking supervisors have an enormous responsibility. The complexity of modern financial systems puts higher demand on their shoulders to make use of modern information technol- ogy, recruit the best data analysts, and monitor the formation of correlation in their system. Institutions under supervision, as well as politicians, need to accept that such talent costs money, since it is time consuming and expensive for individuals to gain the training needed to be able to perform the necessary analyses. Financial supervision is, therefore, expensive, but the lack thereof is, on the other hand, much more so.