This paper makes four points. First, it introduces a new ‘academic’ concept—optimal noise in financial markets. Second, it suggests that the government intervenes to take care of the problem of ‘free ride’ in financial markets. Third, it suggests regulation of entry into the finance profession, whose tasks would include ‘prescribing’ a portfolio choice for (financially) uninformed investors. Fourth, given that deposit insurance, lender of last resort, capital adequacy and supervision of banks are in place, there is no need to impose the following beyond reasonable prudential norms: (a) cash reserve ratio requirement, (b) statutory liquidity ratio requirement and (c) barriers to entry.
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