Leading Minds, Rebalancing the unequal financial system | London Business School
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The document discusses the efficiency of the finance industry, referencing differing views from economists. It examines the productivity of financial intermediation and raises concerns about the lack of evident efficiency gains despite increased intermediation costs. The implications are significant for regulators, practitioners, and stakeholders in the finance sector.
![Traditional Model
Savers
[5]
Banks
[2]
Borrowers
100 100
107105
Quantity Intermediated = 100
Net interest income = 2
Unit cost = 2%](https://image.slidesharecdn.com/lmslidesthomasphilipponslideshare2-150204040331-conversion-gate01/85/Leading-Minds-Rebalancing-the-unequal-financial-system-London-Business-School-4-320.jpg)
![Savers
[5]
Originator
[1]
Mutual
Fund
[0.5]
Hedge
Fund
[0.5]
Borrowers
100 100
Originate and Distribute
106105
A new division of labor:
• Monitoring and screening fee = 1
• Asset management fee = 0.5
• Credit risk hedging cost = 0.5
1
Sum all wages and profits = 2](https://image.slidesharecdn.com/lmslidesthomasphilipponslideshare2-150204040331-conversion-gate01/85/Leading-Minds-Rebalancing-the-unequal-financial-system-London-Business-School-5-320.jpg)
![Savers
[10]
Financial
Firms
[4]
Borrowers
200 200
More Intermediation?
214210
Quantity Intermediated = 200
Intermediation cost = 4
Unit cost = 2%](https://image.slidesharecdn.com/lmslidesthomasphilipponslideshare2-150204040331-conversion-gate01/85/Leading-Minds-Rebalancing-the-unequal-financial-system-London-Business-School-7-320.jpg)
![Savers
[10]
Financial
Firms
[3]
Borrowers
200 200
Efficiency Gains
213210
Quantity Intermediated = 200
Intermediation cost = 3
Unit cost = 1.5%](https://image.slidesharecdn.com/lmslidesthomasphilipponslideshare2-150204040331-conversion-gate01/85/Leading-Minds-Rebalancing-the-unequal-financial-system-London-Business-School-9-320.jpg)
Leading Minds, Rebalancing the unequal financial system | London Business School
- 1. XX Has the Finance Industry Become Less Efficient? Thomas PHILIPPON, NYU, NBER, CEPR
- 2. Two views Joan Robinson (1952) “where enterprise leads finance follows." Merton Miller (1988) “..that financial markets contribute to economic growth is a proposition too obvious for serious discussion.?
- 3. Two Questions Has productivity increased? If not, why not?
- 4. Traditional Model Savers [5] Banks [2] Borrowers 100 100 107105 Quantity Intermediated = 100 Net interest income = 2 Unit cost = 2%
- 5. Savers [5] Originator [1] Mutual Fund [0.5] Hedge Fund [0.5] Borrowers 100 100 Originate and Distribute 106105 A new division of labor: • Monitoring and screening fee = 1 • Asset management fee = 0.5 • Credit risk hedging cost = 0.5 1 Sum all wages and profits = 2
- 6. Income of Finance / GDP
- 7. Savers [10] Financial Firms [4] Borrowers 200 200 More Intermediation? 214210 Quantity Intermediated = 200 Intermediation cost = 4 Unit cost = 2%
- 8. A Tight Connection Indeed
- 9. Savers [10] Financial Firms [3] Borrowers 200 200 Efficiency Gains 213210 Quantity Intermediated = 200 Intermediation cost = 3 Unit cost = 1.5%
- 10. Unit Cost of Intermediation
- 11. Efficiency Gains? • Should have been, but not evident • A cause for concern for regulators • A cause for reflection by practitioners & academics • A cause for anger by savers & borrowers?