What Will Technology Do to Financial Structure?

Frederic Mishkin and Philip E. Strahan

No 6892, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper looks at how advances in information and telecommunications technologies have been changing the structure of the financial system by lowering transaction costs and reducing asymmetric information. Households and smaller businesses can now raise funds in securities markets as financial institutions have become better at unbundling risks while financial products can be distributed more efficiently through electronic networks. These changes have reduced the role of traditional financial intermediaries overall efficiency by lowering the costs of financial contracting. Despite these benefits technological progress presents policymakers with some important challenges. First markets for financial products become larger and more contestable, defining geographic and product markets narrowly becomes more problematic. Second, financial consolidation and the trend towards new activities of financial intermediaries require the exploration of new methods to preserve the safety and soundness of the financial system. A combined system of vigilant supervision and constructive ambiguity to deal with failures of larger institutions should be capable of mitigating the potential for increased risk-taking and help preserve the health of the financial system.

JEL-codes: G2 (search for similar items in EconPapers)
Date: 1999-01
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Published as Litan, Robert and Anthony Santomero (eds.) Brookings-Wharton Papers on Financial Services. Brookings Institution Press, 1999.

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