Tài chính doanh nghiệp - The future of the financial system and the money and capital markets

Money and Capital Markets4C h a p t e rEighth EditionFinancial Institutions and Instruments in a Global MarketplacePeter S. RoseMcGraw Hill / IrwinSlides by Yee-Tien (Ted) FuThe Future of the Financial System and the Money and Capital Markets Learning Objectives To understand the economic, demographic, social, and technological forces reshaping the financial system today.To study where recent trends in the financial system appear to be leading us and how we may be affected.To understand how the problems of the financial system today may influence the shape of the financial marketplace of the future.IntroductionPowerful forces are reshaping the financial system today, as well as the public’s demand for financial services.These forces for change include powerful new trends within the financial sector itself, major changes in the structure and functioning of the economy, and new social and demographic trends that are altering the public’s need for innovative financial services.Financial ForcesReshaping the Financial System TodayFinancial innovation - the development of new financial services and instrumentsService proliferation - the expansion of the menu of financial services offeredCompetition - the intense struggle for the customer’s businessHomogenization - the blurring of the traditional distinctions among the different types of financial institutionsFinancial ForcesReshaping the Financial System TodayConsolidation and convergence - mergers and acquisitions across sectors have created financial giants and decreased the number of firms in the industryDeregulation - the lightening or elimination of government rules Globalization - the global expansion of operations and the falling of geographical barriersFinancial ForcesReshaping the Financial System TodayHarmonization - the coordination of financial and economic policiesMarket broadening - the expansion of traditionally local markets to become regional, national, or even international in scope Securitization - the pooling of loans and the issuance of securities as claims against the loan poolGreater emphasis on risk managementSocial, Economic, & Demographic Forces and TrendsReshaping the Financial System TodayAging population - there is a greater need for retirement, tax and estate planningChanging basic family unit - the rise in the proportion of single-parent households, parents and children living apart, immigrants, and well-educated working women will increase the demand for new forms of housing, daycare facilities, flexible work schedules, and less expensive medical care.Social, Economic, & Demographic Forces and TrendsReshaping the Financial System TodayDisplacement of the manufacturing industries by service industries in more developed economiesTechnological innovation - the dissemination and storage of information today is broader, cheaper, faster, and more accurateInternationalization of markets - such as the formation of the European CommunityRisk in the Financial System:The Challenges and OpportunitiesThe money and capital markets and the financial institutions that operate within them depend heavily on public confidence.Ways to promote the strength and viability of financial institutions, and hence public confidence, includegovernment insurance systemscapital adequacy regulationsmarket disciplinerisk-management toolsRisk in the Financial System:The Challenges and OpportunitiesHowever, the efforts made at promoting public confidence are limited by the information problem - capital market investors can only approximately price the securities of institutions that do not fully disclose their financial condition and prospects.New Technology:The Challenges and OpportunitiesThe technological revolution in information analysis, storage, and transfer is moving at an accelerating pace.Global integrated electronic networks are changing the design and delivery of financial services:Internet or World Wide WebCellular telephones and hand-held computersSmart cardsNew Technology:The Challenges and OpportunitiesHowever, the adjustment of the public to the unfolding technological revolution will probably be slower than the revolution itself.The areas to watch include:friendliness of the user interfaceoperating costs and service pricesease of technological upgradedata integrity and system securityHomogenization of Financial-Service Suppliers:The Challenges and OpportunitiesFinancial-service firms will face increasingly intense competition and price-sensitive customers.Financial institutions with extensive service delivery systems will have a competitive advantage.Homogenization of Financial-Service Suppliers:The Challenges and OpportunitiesThe unfolding new markets will require new financial institutions and instruments, such as credit risk derivatives and additional secondary markets for loans.New institutions will also be needed to facilitate the continuing trend of securitization, such as those that deal in mortgage-backed securities.Consolidation and Convergence:The Challenges and OpportunitiesProponents argue that:The elimination of duplication will bring about substantial savings in operational costs.The broadening of services and customer segments will accelerate the growth in revenue.The greater diversification will reduce overall risk.The combination of expertise will result in higher-quality products and services. The greater economies of scale will increase the affordability of the latest technologies.Consolidation and Convergence:The Challenges and OpportunitiesOpponents point out that:The greater complexities of the firm may increase its operating costs.The public’s demand for “one stop” financial shopping may be overestimated.Smaller financial-service companies may have their own competitive advantage.Smaller financial-service companies may compete effectively in terms of the range of services available by outsourcing part of their operations.Financial Services RegulationThe growing consolidation and convergence of financial-service companies poses major new challenges for the regulatory agencies charged with maintaining a competitive, yet safe and stable, financial system.Different approaches to regulation are possible depending on the organizational structures that are allowed.Financial Holding CompanyInsuranceCompanies,Underwritersand AgentsSecurity Brokers, Dealers and UnderwritersBankingFirmsOtherFinancial-ServiceCompaniesFinancial Services RegulationFinancial Holding Company ModelBanking or Other Controlling FirmSecuritiesSubsidiaryInsuranceSubsidiaryFinancial Services RegulationSubsidiary ModelHolding Company or Parent FirmAffiliated and/or Subsidiary CompaniesFinancial Services RegulationSingle Regulator Model - One regulatory agency supervises the operations of the whole financial service firm.Financial Services RegulationFunctional Regulator ModelHolding Company or Parent FirmSecuritiesFirmInsuranceCompanyBankSecuritiesRegulatorInsuranceRegulatorBank RegulatorHolding Company RegulatorManagement CoordinationThe difficulties of coordination and control in larger and more diversified financial institutions call for:employees who are well trained in coordination and control skills,strong internal auditing procedures and management information systems, andcontinual evaluation of subsidiary firms, profit centers, and service functions for their contributions to the goals of the financial firm.The Future of the Payments SystemTomorrow’s economy and financial marketplace will depend crucially upon the continuing ability of the world’s payments system to function efficiently, speedily, and accurately.In the U.S., the retail payments system lags significantly behind the wholesale payments system in converting from expensive paper transactions to electronic systems.The Future Need forRegulation of Financial InstitutionsThe recent trend toward deregulation is likely to continue, leading to:reduced barriers to geographic diversification,reduced restrictions on the portfolio choices made by financial institutions,reorganization of regulatory agencies, andreduced barriers to product-line diversification.The Future Need forRegulation of Financial InstitutionsHowever, there are some regulations which will be maintained or even re-emphasized:financial disclosure regulations,privacy protection regulations,regulations pertaining to social responsibility, andregulations that promote a level playing field.Money and Capital Markets in CyberspaceA number of web sites are devoted to the changes and trends that are reshaping the money and capital markets. See, for example: ReviewIntroductionForces Reshaping the Financial System TodayFinancial ForcesSocial, Economic, and Demographic Forces and TrendsChapter ReviewThe Challenges and Opportunities Presented by Recent TrendsDealing with Risk in the Financial System: Ensuring the Strength and Viability of Financial InstitutionsThe Effect of New Technology on the Design and Delivery of Financial ServicesThe Changing Mix of Financial-Service Suppliers Consolidation and Convergence Trends Within the Financial SystemChapter ReviewA New Role for Financial Services Regulation in an Age of Financial-Service Consolidation and ConvergenceManagement Coordination within Diversified Financial InstitutionsThe Future of the Payments SystemThe Future Need for Regulation of Financial Institutions