The transformation of the financial services industry

FSI Papers
March 2002

Foreword

It is a pleasure for me to introduce the second occasional paper published by the Financial Stability Institute. Apart from creating an awareness of, and providing information on, topics of interest to financial sector supervisors, these papers are also intended to provide food for thought on issues currently driving change in the financial sector. In many cases supervisors will be required to respond to these changes, often in ways that have far-reaching implications for financial markets.

The Financial Stability Institute believes that Dr H Onno Ruding, currently Vice-Chairman of the Citibank Group and formerly the Minister of Finance of The Netherlands, is ideally placed to provide a balanced view on the topic of the transformation of the financial services industry. He has been exposed to the workings and vagaries of financial markets from both the public and private sectors. This paper is based on a speech given by Dr Ruding at a conference on deposit insurance held at the Bank for International Settlements in November 2001.

The paper explores consolidation in the financial services industry and provides valuable insights on the forces driving consolidation and the implications for both financial institutions and supervisors. The paper also sets out minimum requirements for an effective safety net and provides thoughts on how the resulting moral hazard can be mitigated. Finally, the author examines the issue of regulatory and supervisory policies and the effect they can have on the competitiveness of participants in financial markets.

The issues raised in this paper are, we believe, both topical and relevant to financial supervisors, not only in developed countries but also in emerging markets.

Josef Tošovský
Chairman
Financial Stability Institute
March 2002