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Towards an Understanding of the Changing Structure of Financial Intermediation: An Evolutionary Theory of Institutional Survival  

by Joseph Bisignano

ISBN 90-5143-026-4

This paper is an attempt to look at the changing structure of financial intermediation in industrial countries from a different angle and with a different set of lenses than has previously been employed. The exercise is essentially exploratory. The study is concerned less with what we think is happening to the structure of financial intermediation than how we might try to understand its evolution. The idea is to borrow from some of the work of modern economic historians and industrial organisation theorists who have tried to understand the role of institutional structure and technological change in determining the evolution of economic systems. The attempt is presumptuous, firstly because the author is not an economic historian, and secondly because the topic presumes an understanding of a number of complex areas in theoretical and applied industrial organisation and finance. To excuse the presumption and the several pilfering of ideas which follow, I refer to T.S. Eliot’s response to the accusation that in his poem ‘Ash-Wednesday’ he liberally lifted a line from a Shakespeare sonnet and from the work of the 13th century Florentine poet Guido Cavalcanti2. Eliot’s retort was that immature artists imitate, while mature artists steal. My ‘maturity’ is revealed in my considerable references to the work of other researchers. The paper attempts to weave together several related threads of financial evolution, the theory of risk, innovation, organisation and technology, financial regulation and adaptive economic behaviour, using some ideas initially developed by Armen Alchian, later furthered by Douglass North, on change and evolution in economic systems, and the theory of competing technologies and self-reinforcing mechanisms in economics developed by W. Brian Arthur. The weave is not always tight; at times the nitted fabric may tear. Several historical illustrations are given to make some of the conjectures appear less strained than they may at first appear. Much of the discussion of modern financial institution transformation has a decidedly US bent, given the rapid growth of institutional investment and bank asset securitisation in that country.

Additional Info
Keywords: corporate governance
Authors: Joseph Bisignano
Editors: Morten Balling

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