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 simplicity of exchange-traded funds is appealing to lay investors, and their costs are low. But they could be a time bomb for global markets. Credit:James Davies

The popularity of ETFs has soared in the past decade. The proportion of US equity-fund assets that are passively managed has nearly doubled in that time to nearly 40 per cent. Vanguard alone owns positions greater than 5 per cent in 491 of the stocks on the S&P 500, adding up to nearly 7 per cent of the index's total market cap. In Japan, where the central bank owns big stakes in ETFs, passive investors hold over half of all sharemarket assets.

It's easy to see why such funds have thrived. ETFs, invested in indices that are theoretically diversified, have consistently outperformed active managers.