Why investors, not banks may play crucial role in next financial crisis

Valued for their simplicity, exchange-traded funds pose worrying risks

Banks must bear much of the blame for previous financial crises. In the next one, ordinary investors could play a more central role.

Ironically, they’ll do so through vehicles created with them in mind – exchange-traded funds, or ETFs. These listed funds are passive by nature, designed to track the performance of an index of stocks, bonds, currencies or commodities rather than to pick and choose among individual companies.

The popularity of ETFs has soared in the past decade. The proportion of U.S. equity-fund assets that are passively managed has nearly doubled in that time to nearly 40 percent. Vanguard