Financial Intermediation in the 21st Century

Financial Intermediation in the 21st Century

Financial Intermediation in the 21st Century

Financial Intermediation in the 21st Century


The increasing interdependence of the world economy has huge implications for global finance in the 21st century. This volume brings together leading scholars and practitioners to offer an in-depth analysis of the new direction open to the financial services industry. They explore the challenges and opportunities of the new finance era, future development in financial markets, with particular emphasis on the role of new technologies and the industry's view of strengthening financial intermediation. The book concludes with an assessment of key managerial and regulatory issues.


Gary L. Perlin

In order to assess the likely nature of financial intermediation in the twenty-first century, it is necessary to begin by describing the state of financial intermediation at the close of the twentieth century and the challenges facing it. I suggest we focus on matters of risk rather than on the associated businesses of aggregating funds, processing payments and so on.

Most importantly, capital is now global, and this capital is increasingly and irreversibly intermediated through markets, not through bankers' balance sheets. Information and communications engineers have provided capital market participants with immediate access to each other. Financial engineers have provided the instruments with which to transact business through these channels. And policy engineers have developed, typically from their national base, an evolving and increasingly deregulated global system. Unfortunately changes by policy makers and regulators are not often synchronised, introducing a degree of friction and occasionally some tempting opportunities. Regulators often respond only to crisis, to competition and sometimes to fashion. We are blessed with a highly robust system, but one which needs a push to change it now and then.

Investment capital often seeks returns through national institutions and in regional markets, but its perspective is global. And unlike the capital that backs bank balance sheets, this capital is not always levered. It represents long-term savings, able to bear more risk than those of banks' balance sheets. It demands, attracts and rewards tradable instruments that become standardised by markets and constitute highly diversified portfolios hungry for risks and their expected returns.

Global capital has brought pressure to bear on traditional intermediaries in more ways than one. It has supplanted much of the risk intermediation role formerly played by banks, of course. But global equity capital has also increased pressure on traditional intermediaries to perform. It rewards the promise of sustainable earnings growth rather than impressively sized balance sheets. In turn we see banking institutions voluntarily deploying more of their capital away from longer-term intermediation risks, in which it is difficult to

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.