What Will Technology Do to Financial Structure?

41 Pages Posted: 16 Feb 1999 Last revised: 7 May 2000

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: January 1999

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.

Suggested Citation

Mishkin, Frederic S. and Strahan, Philip E., What Will Technology Do to Financial Structure? (January 1999). NBER Working Paper No. w6892. Available at SSRN: https://ssrn.com/abstract=147163

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
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Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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