 Universal banking and financial architectureIngo Walter The Quarterly Review of Economics and Finance, 2012, vol. 52, issue 2, 114-122 Abstract: Discussions of systemic risk after the financial crisis of 2007–09 have focused heavily on so-called “systemically important financial institutions” (SIFIs) a cohort of financial firms that is almost exclusively (but not necessarily) comprised of large, complex and heavily interconnected financial conglomerates. This paper considers the economic and strategic drivers of SIFIs – if such institutions are a key source of systemic risk, it is important to understand how and why they get that way. The paper then sets forth a public-interest perspective on the financial architecture by setting out key benchmarks – static and dynamic efficiency, stability and robustness, and competitiveness – and the tradeoffs that exist between them, and examines how SIFIs can support or detract from these benchmarks. If SIFIs are to be subject to much sharper prudential regulation, its impact must be calibrated against systemic performance benchmarks. Finally, the paper focuses on some of the major regulatory initiatives following the 2007–09 financial crisis, and in particular the US Dodd-Frank legislation of 2010, in terms of their possible impact on business models of SIFIs. The paper concludes that improving the financial architecture in a disciplined, consistent, internationally coordinated and sustained manner with a firm eye to the public interest should ultimately be centered on market discipline. By being forced to pay a significant price for the negative externalities SIFIs generate – in the form of systemic risk – managers and boards will have to draw their own conclusions regarding optimum institutional strategy and structure in the context of the microeconomics and industrial organization of global financial intermediation. If this fails, constraints on their size, complexity and interconnectedness will be a major part of the policy reaction to the next financial crisis. Keywords: Financial architecture; Regulation; Systemic risk; Economies of scale; Economies of scope; Shadow banking (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:52:y:2012:i:2:p:114-122 DOI: 10.1016/j.qref.2011.12.007 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.