NY Fed, Report: Financial Fragility without Banks

“Although banks retain a special role in the financial system, which dates back to the 19^th century, the crisis of 1772 demonstrates that a sophisticated financial system can thrive and fail without banks. Asset cycles, gambling for resurrection, moral hazard and too-big-to-fail issues persist in a world with or without banks. As happened with the rescue of large banks during prior crises, public authorities deemed rescue operations to be the lesser of two evils when large NBFIs failed. The recent growth of non-bank financial firms may thus be viewed, not as something novel, but as the pendulum swinging back to something very old.”