Further, once there are institutions that are free of the now-diluted regulatory system, even those that are more regulated are entangled in risky operations. They are entangled, because they themselves have lent large sums in order to benefit from the promise of larger returns from the risky investments undertaken by the unregulated institutions. They are also entangled because the securities on which these institutions bet in a speculative manner are also securities that these banks hold as "safe investments". If changes in the environment force these funds to dump some of their holdings to clear claims that are made on them, the prices of securities the banks directly hold tend to fall, affecting their assets position adversely. This means that there are two consequences of the new financial scenario: it is difficult to judge the actual volume and risk of the exposure of individual financial institutions; and within the financial world there is a complex web of entanglement with all firms mutually exposed, but each individual firm exposed to differing degrees to any particular financial entity. The increase in the incidence of cross-industry mergers within the financial sector consolidates this tendency towards entanglement of agents involved in sectors of financial activity characterized by differential risk and substantially differential returns, thereby increasing the share of high-risk assets in the portfolio of large financial agents.
 
It is in this light that the consolidation in the financial sector involving a reduction in the number of operators, a huge increase in the size of operators at the top end of the pyramid, and the growing integration of financial activity across sectors and globally needs to be assessed. While the rise to dominance of finance has been accompanied by a growing role for speculative investment and profit, the concentration of increasingly globalized financial activity would lead to higher share of speculative investments in the portfolio of financial agents and greater volatility in investments worldwide as well as make it difficult if not impossible for national regulators to monitor the activity of these huge entities. The risk of financial failure is now being built into the structure of the system.
 
This has two kinds of consequences. First it increases systemic risk within the financial sector itself. If transactions of the kind that led upto the savings and loan crisis or the Barings debacle come to play a major role in any of these large behemoths, and go unnoticed for some period by national regulators, the risks to the system could be extreme, given the integration of the financial system and entanglement of financial firms. Second, once a crisis afflicts one of these agents, the process of bailing them out may be too costly and the burden too complex to distribute. The G-10 report is quite candid on this count. To quote the report:
 
"It seems likely that if a large and complex banking organisation became impaired, then consolidation and any attendant complexity may have, other things being equal, increased the probability that the work-out or wind-down of such an organisation would be difficult and could be disorderly. Because such firms are the ones most likely to be associated with systemic risk, this aspect of consolidation has most likely increased the probability that a wind-down could have broad implications.