Infographic: In China, a Loophole Allowed Insider Trades
Research highlights the need for cross-border cooperation among securities regulators.
Infographic: In China, a Loophole Allowed Insider TradesRandall S. Kroszner: I think we’re at a defining moment in the financial system. A lot of people have said the revolution has occurred. I’m not so sure that’s it’s occurred yet, but it has the potential to be there.
(soft chiming music) Today, banks are really at the heart of the financial system. Without banks, it would be very difficult to make payments, be very difficult to create credit. It’d be very difficult to create money. Recently, we’ve seen a lot of technological disruptors enter financial services. So examples would include not only digital currencies like Bitcoin, but also peer-to-peer lenders, crowdsourced funding, and a whole variety of other innovations that people are coming up with as ways to not use deposits to fund lending.
So Bitcoin is this unusual creature because we’re not exactly sure who created it or exactly when it was created. It’s really a series of protocols about how one person or entity can make a transaction with another. Banks are classic intermediaries. They’re there between two people who are making payments. What Bitcoin allows is for that intermediary to no longer have to be there. If the central bank in your country is behaving badly, then you wanna try to find some alternative.
So in Argentina, when the central bank is creating a lot of inflation and making it very difficult to make payments and putting on all sorts of controls, Bitcoin is a terrific alternative. In most other countries, the central banks aren’t behaving that badly. And so, it doesn’t provide that important of an alternative, but it does put a discipline on central banks. If they behave badly, there’s this easy alternative for people to turn to.
It so far hasn’t really taken off as a unit of account, medium of exchange, store of value, the classic things we associate with money, but it has the potential to do so. One of the potential revolutionary aspects of all this innovation is that banks shouldn’t think of themselves as financial institutions, but really data-analytics companies. And so, anyone who might have the data to be able to do credit analysis and who might also have access to financing, like a Google or Amazon, who can issue debt in the public markets, could now provide credit and could now do credit scoring and figure out who should be getting credit and who shouldn’t on a profitable basis.
And so, it’s quite possible that some very large tech firm could use information about the kinds of things that you purchase, the kinds of things that you do searches for, even your location, to draw out a lot more information to a lender to say, hey, this person is a good credit. The questions is 1) How much value is in that additional information? And 2) How much are we willing to give up on our privacy to say, OK, I’m gonna give you that information so I can try to get a better, effective credit score, and so more access to credit.
And so I think this is a real call to arms for banks to rethink the way they operate, that they really should be data analytics firms who happen to be providing finance, because it’s going to be that firms that have a lot of data about people are gonna be entering finance, and banks better be prepared for that. Otherwise, banks may not be around for very long.
Research highlights the need for cross-border cooperation among securities regulators.
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