Financial Innovation and the Management and Regulation of Financial Institutions

Posted: 10 Oct 1998

See all articles by Robert C. Merton

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit

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Abstract

New security designs, improvements in computer telecommunications technology and advances in the theory of finance have led to revolutionary changes in the structure of financial markets and institutions. This paper provides a functional perspective on the dynamics of institutional change and uses a series of examples to illustrate the breadth and depth of institutional change that is likely to occur. These examples emphasize the role of hedging versus equity capital in managing risk, the need for risk accounting and changes in methods for implementing both regulatory and stabilization public policy.

JEL Classification: G20, G10

Suggested Citation

Merton, Robert C., Financial Innovation and the Management and Regulation of Financial Institutions. Available at SSRN: https://ssrn.com/abstract=6458

Robert C. Merton (Contact Author)

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Harvard Business School - Finance Unit ( email )

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