Who should bear the risk of financing the economy?

A first distinction to be made is between intermediated financ e (euro zone) and disintermediated financ e (United States). When financ e is disintermediated, it is primarily households that bear the risk of financing the economy. When it is intermediated: If the liabilities of financial intermediaries (banks, life insurers) are risk-free and if intermediaries are not bailed out by the government in the event of a crisis, then it is their shareholders who bear the risk. They then demand a commensurate risk premium, which makes financial intermediaries’ cost of the capital very high; The government may then intervene to reduce the risk borne by the shareholders of financial intermediaries by guaranteeing loans, giving public banks a greater role or creating government agencies that buy loans from banks (Freddie Mac, Fannie Mae). The risk of financing the economy is then borne in part by the government, but in reality it falls on households, which would ultimately foot the bill (tax increases, public spending cuts) if the government incurred losses; If the central bank ensures government solvency, it buys government bonds. But if there are losses on these bonds, the government will have to offset them: the central bank cannot unload risk from the government. From a normative viewpoint, who should bear the risk of financing the economy? We believe it likely that European households can bear a larger share of the risk than they do at present, and that European governments must relieve financial intermediaries’ shareholders of some of it.