[...] There are three reasons to believe that, before the crisis, the banking sector as a whole became too large. [...] The belief that when in trouble banks will be bailed out by the state because they are too important to fail leads to an implicit subsidy, which means a larger banking system than is justified by the underlying economics.

Second, many of the examples of high personal renumeration, especially in the form of bonuses, in the financial sector reflect not high productivity but what economists call rent-seeking behaviour. In other words, the renumeration is far higher than is necessary to persuade people to work in the industry. [...] Many of the transactions in complex financial instruments are zero-sum--a clever trader makes money out of a less clever one. Such activity diverts talent from professions where the social returns are high, such as teaching, to those, such as finance, where the private return exceeds, often substantially, the social return.

Third, financial capital is attracted into the industry by the appearance that there are high profits to be made. [...] a common way of exploiting normal accounting conventions for derivative and other complex transactions was to report as current income the present value of expected future cash flows, even though they had not yet been received. [...]