 |  Money and Capital Markets: Financial Institutions and Instruments in a Global Marketplace, 8/e Peter Rose,
Texas A & M University
The Future of the Financial System and the Money and Capital Markets
Chapter SummaryThe focus of this chapter is the future of the money and capital markets and the financial
system that surrounds them. We have highlighted several powerful financial, economic,
demographic, regulatory, and technological trends that are reshaping the financial marketplace
today and helping to determine the future of the money and capital markets.
- Among the most important broad trends affecting the financial system today are service
innovation (i.e., the development of many new financial services), service proliferation (as
the service menu offered by most financial firms grows), deregulation (as governments
pull back and let the private marketplace play a bigger role in shaping the financial system),
globalization (as financial-service companies more frequently reach across national
borders), consolidation (as financial firms grow individually large but there are fewer of
them), and competition (as broader markets, better technology, and longer service menus
bring more financial institutions into direct competitive rivalry with each other).
- This chapter also tackles the broad social, economic, and demographic trends that are
restructuring financial services and financial institutions today. The chapter highlights
major shifts in the character of the population—the consumers of today’s and tomorrow’s
financial services. That population is not only growing older with a need for a
somewhat different menu of services, but is also more focused on risk exposure and the
need for long-term, relatively stable sources of income. Financial institutions must learn
to better serve this most rapidly growing segment of the world’s population who are living
longer and need larger reservoirs of savings to live a decent life.
- This chapter examines the broad technological and economic changes that are likely to
make the financial markets look very different in the era ahead. Service-oriented industries,
such as those active in the money and capital markets, are expanding, while manufacturing
units are becoming less important, particularly in the United States and in
Europe. Automation, expansion of telecommunications, and the emergence of remarkable
advances in biotechnology have opened up new areas for capital investment and for
accelerated economic growth provided the financial system can generate more savings
to fund them in the future.
- Each of the foregoing trends must be dealt with by the management and owners of financial
institutions. The foregoing trends call for new managerial methods and new
technical skills. These include greater knowledge of marketing and planning techniques,
more sensitivity to older customers’ financial needs, knowledge of how to integrate new
technology into the financial-services business, and the capacity to deal with the information
revolution, making effective use of the incredible flow of information we are ex-periencing
and turning it into sound financial decisions.
- No one knows for sure what the financial system of the future will look like. Only the
broadest outline seems clear at this point and the details are still hazy. It seems safe for
us to predict fewer, but larger financial-service institutions and more highly diversified
financial firms, growing competition, and the likelihood of some failures within an increasingly
competitive financial system.
- Financial institutions of the future almost certainly will come to pay more attention to
the tasks of risk management and to training their employees to be more effective
salesmen and women. Managers and their staffs inside financial institutions will have to
work harder to control expenses, improve productivity, be more price conscious and
make better pricing decisions, and strive for great reliability in serving the customer.
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2003 McGraw-Hill Higher Education