Competition and Regulation in Financial Markets: Concluding Observations

These are troubled but fascinating times for economists and policymakers concerned with the structure of financial markets, financial regulations and financial market performance. Both the trouble and the fascination come from much the same source. The central paradigms used to study and explain the largely separate macroanalytics and the microanalytics of money and banking, central banking and regulatory aspects of financial markets are no longer usefully applicable to today’s problems. Market segmentation has broken down. Issues in aggregative economics — the supply and demand for money, interest rates, relations between money, interest rates and income and employment — are so intimately affected by regulatory structures and the competitive behaviour of financial institutions that the latter cannot be ignored in macroanalysis. Regulatory and competitive issues which in the past could be viewed in terms of microeconomic efficiency and equity standards are now seen to have significant aggregative impacts. The trouble and the fascination, mixed liberally with considerable frustration, come from the absence of alternative paradigms that successfully blend the macro- and microeconomics of financial markets. We are groping about without a reliable theoretical guidance system.