Problems of Growth and Stability
Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd
Chapter 4: Financial institutions and financial markets: the emergence of a new class of universal banks
Jordi Canals The spread of globalization and deregulation in financial services and the increasing influence of information technologies on the management of financial institutions make up a powerful set of forces that are shaping and will define in a unique way the future of the world financial system and the national financial systems as well. This combination of forces raises new questions about the evolution of financial systems worldwide. One of the most relevant is the role that financial institutions and, more specifically, banks will have in the financial system of the future. A few years ago, some authors (see Bryan, 1991) predicted the slow but irreversible decline of banks in industrial countries, some of them still beset by their bad economic performance in the 1980s, and all of them under the attack of new competitors from inside and outside the traditional financial system. The banks’ most formidable competitor was capital markets. The unleashing forces of deregulation, stiff competition and technological change in the main financial centers round the world in the late 1980s were appalling. Among other factors, investment banks and brokerage firms were chasing after companies and individual savers alike and propelling formidable growth in capital markets. The traditional intermediation function that banks had performed for centuries was in danger of extinction. Are banks really losing or going to lose their role in the international financial system? Will capital markets sweep away any influence of traditional financial intermediaries? Will globalization spread the same model of financial system round...
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