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Four Futures for Finance; A scenario study

Author

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  • Michiel Bijlsma
  • Wouter Elsenburg
  • Michiel van Leuvensteijn

Abstract

This document presents four scenarios for the future of finance. The goal of our study is to imagine the future of finance and to identify challenges faced by policymakers in fighting systemic risk. It builds upon a tradition within the CPB to develop scenarios for policy analysis. We develop four scenarios for the future of finance. Our scenarios differ in two dimensions. First, to what extent soft information lies at the core of banks’ business. Second, to what extent scope economies exist between different banking activities.By combining these two dimensions, we obtain four scenarios: Isolated Islands, Big Banks, Competing Conglomerates, and Flat Finance. Market structure, market failures, and government failures vary between scenarios.These differences then translate into differences in the complexity of balance sheets, the ability to coordinate policy internationally, the information gap faced by regulators, the size of banks’ balance sheets, the tradability of banks’ assets, the level of interconnectedness, the potential for market discipline, and the threat of regulatory capture. As a result, each scenario calls for a different set of policies to combat systemic risk.

Suggested Citation

  • Michiel Bijlsma & Wouter Elsenburg & Michiel van Leuvensteijn, 2010. "Four Futures for Finance; A scenario study," CPB Document 211, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:docmnt:211
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    1. repec:erf:erfstu:79 is not listed on IDEAS
    2. Coen Teulings & Frits Bos, 2010. "CPB and Dutch fiscal policy in view of the financial crisis and ageing," CPB Document 218.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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