Tag Archives: Standardization

Financial Intermediation and Standardization

On his blog, John Kay speculates about the future of financial intermediation:

The paradox of modern capital markets is that although there is less and less need for market activity from the point of view of either the end users of finance, or the investors who are the ultimate beneficiaries of finance, the volume of market activity has increased exponentially. …

The growth of secondary market trading at the expense of an understanding of the underlying exposure led to disaster in the global financial crisis of 2008, just as it had earlier led to disaster at Lloyd’s. …

Standardisation is not an answer to the problem of information provision in financial markets, nor is pervasive information asymmetry successfully resolved by insistence on the provision of detailed financial information on a standardised basis, whether in company accounts or key features documents.

… it is time to raise question marks over the entire market based model of financial services provision. We should be talking about risk management and capital allocation without any presumption that markets are the best way of handling these issues.