Three primary factors appear to explain these repeated failures in supervisory and market
discipline of LCBOs [Large complex banking organizations]. First, major banks have become more complex and harder to evaluate by regulators and the financial markets over the past three decades. Second, all of the three leading institutional sources of market discipline for LCBOs – securities analysts, external auditors and rating agencies – have been compromised by conflicts of interest. Third, while market discipline is frequently ineffective in predicting the onset of financial crises, it can be indiscriminate in punishing firms after a financial crisis begins.