Financial markets in 2020

Advances in communications and information management, combined with new developments in financial theory, will radically alter the way that financial services are delivered in the next century. This is the view of Charles Sanford, Chairman of Bankers Trust, as expressed in his luncheon address at the Federal Reserve Bank of Kansas City's 1993 symposium on \\"Changing Capital Markets: Implications for Monetary Policy.\\"> According to Sanford, the basic financial functions will still be present, but traditional financial products, such as loans, borrowings, and securities, will be replaced with \\"claims on wealth\\" or \\"financial claims\\" that will be actively traded around the clock and worldwide. Banks, as currently structured, will no longer exist. And there will be no need for separate financial branches as individuals become more directly linked to markets and financial service providers.> To make this future possible, further advances in financial theory will be necessary to identify underlying risks and their component attributes, to price these attributes, and to re-bundle the attributes into new investment products. Sanford traces out some of the implications of these changes for financial markets and policymakers. While the future financial system would tend to be more efficient in terms of lower transactions costs and better risk management, Sanford thinks the task of managing financial institutions will be more complex. In addition, he stresses that to monitor and control systemic risk, central banks will have to understand and adapt to this new financial world.