(BQ) Part 2 book "Rethinking the role of state in finance" has contents: The role of the state in promoting bank competition, the role of the state in financial infrastructure, direct state interventions. | 3 The Role of the State in Promoting Bank Competition • ompetition in the banking sector promotes efficiency and financial inclusion, withC out necessarily undermining financial stability. • ven if the recent crisis is perceived as an episode where competition exacerbated E private risk taking and helped destabilize the system, the correct public policy is not to restrict competition. What is needed is a regulatory framework that ensures that private incentives are aligned with public interest. • he state can play a role in enhancing banking competition by designing policies that T guarantee market contestability through healthy entry of well-capitalized institutions and timely exit of insolvent ones and by creating a market-friendly informational and institutional framework. • overnments should be mindful of the consequences of their intervention during G c rises and limit negative consequences on bank competition and risk taking. T he recent crisis reignited the interest of policy makers and academics in assessing bank competition and rethinking the role of the state in shaping competition policies (that is, policies and laws that affect the extent to which banks compete).1,2 Some believe that increases in competition and financial innovation in markets such as subprime lending contributed to the recent financial turmoil. Others worry that the crisis and government support of the largest banks increased banking concentration, reducing competition and access to finance, and potentially contributing to future instability as a result of moral hazard problems associated with too-big-to-fail institutions. Box presents a recent debate on the relationship between competition and financial stability. Another reason why competition matters is related to the changing mandate of central banks and bank regulatory agencies. Although traditionally the primary goal of bank regulators has been to ensure bank stability, this is changing. According to .
