The bank's functions

Kal's cartoon - The Economist

Is to finance the economy. That is, to efficiently allocate capital. It is usually taken for granted that risk allocation, another function of financial systems, goes hand in hand with efficient capital allocation. Could it be argued, however, that there is a limit beyond which too much risk allocation is beneficial (or even detrimental indeed) to the financial system only ? That passed this point, the tow truck risk loosing its wheels ? The question is important because the financial sector is linked to the rest of the economy. When it is broken, the economy is dysfunctional. Kal's cartoon couldn't have captured it better.