1. Financial Intermediaries and Financial Innovation
Chapter 2
Financial Intermediaries and Financial Innovation

2. Services of Financial Institutions
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Services of Financial Institutions
Transforming Financial Assets
Exchanging Financial Assets on Behalf of Customers
Exchanging Financial Assets for Own Account
Assisting in the Creation of Financial Assets
Providing Investment Advice
Managing Portfolios

3. Role of Financial Intermediaries
Transfer of funds from savers to investors
Types of Investments
Direct Investment
For example, purchasing a portfolio of stocks and bonds
Indirect Investment
For example, purchasing an equity claim issued by an investment company

4. Role of Financial Intermediaries
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Role of Financial Intermediaries
Providing Maturity Intermediation
Reducing Risk Through Diversification
Reducing Costs of Contracting and Information Processing
Providing a Payments Mechanism

5. Role of Financial Intermediaries
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Role of Financial Intermediaries
Providing Maturity Intermediation
Reducing Risk via Diversification
Reducing Costs of Contracting and Information Processing
Providing a Payments Mechanism

6. Asset/Liability Management
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Asset/Liability Management
Spread and Non-Spread Businesses
Nature of Liabilities
Amount of cash outlay
Timing of cash outlay
Liquidity Concerns
Regulations and Taxation

7. Nature of Liabilities of Financial Institutions
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Nature of Liabilities of Financial Institutions

8. Categories of Financial Innovation by Economic Council of Canada
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Market-broadening instruments
Risk-management instruments
Arbitraging instruments and processes

9. Categories of Financial Innovation by BIS
Price-risk-transferring innovations
Credit-risk-transferring instruments
Liquidity-generating innovations
Credit-generating instruments
Equity-generating instruments

10. Causes of Financial Innovation
Increased volatility of interest rates, inflation, equity prices, and exchange rates
Advances in computer and telecommunications technology
Greater sophistication of market participants
Financial intermediary competition
Incentives to circumvent regulations and tax laws
Changing global patterns of financial wealth

11. Asset Securitization Meaning of Securitization
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Asset Securitization
Meaning of Securitization
Basic Structure of Asset Securitization

12. Benefits to Issuers Diversification and Reduced Cost of Financing
Management of Regulatory Capital
Generation of Servicing Fee Income
Management of Interest Rate Volatility

13. Other Benefits To Investors To Borrowers Social Benefits
Greater liquidity
Reduced credit risk
To Borrowers
Lower lending rate spreads
Social Benefits