Glamor Economics

Chapter 119

Chapter 15 Section 10 Financial Forces That Cannot Be Neglected—Financial Intermediaries

The winter of 2007 in New York was exceptionally cold. In November, the CEOs of Merrill Lynch, the largest Wall Street securities company, and Citigroup, the world's largest financial consortium, changed hands one after another.Wall Street and the entire financial world were shocked.When both Merrill Lynch and Citigroup were searching for a CEO successor, they all locked their eyes on the same person.This person is a legendary figure on Wall Street——John?Thain.

John?Thain eventually chose the beleaguered Merrill Lynch.

But in less than a year, this legendary financial figure on Wall Street personally sent a 94-year-old investment bank into the history books. September 2008, John?Thain sold Merrill Lynch, one of the top five U.S. investment banks, for $9 billion, and the taker was Bank of America.The purchase price is only about two-thirds of Merrill Lynch's market value a year ago, and only half of the peak market value of the bank in early 500.

However, this is still a relatively reassuring thing for Wall Street, knowing that another Wall Street investment bank, Lehman Brothers, has declared bankruptcy.The speed at which Merrill Lynch struck a deal with Bank of America was astounding.Because of the impact of the subprime mortgage crisis, Merrill Lynch's share price plummeted, and it was hard to save itself, John?Thain made a decision to contact Bank of America CEO Kenneth?Lewis, to see if he is interested in acquiring.Bank of America CEO Kenneth?Lewis has always been known for acquisitions, and the acquisitions are all large companies larger than Bank of America.

Bank of America isn't the only negotiator in Merrill's hunt for a takeover.Merrill Lynch once extended its tentacles to Morgan Stanley, trying to integrate the two financial intermediary brands with the longest history on Wall Street in the United States.But without success.Because Morgenstern needed time, and Merrill couldn't wait.In this financial earthquake, Wall Street began a traumatic integration, and many famous financial institutions fell one after another, such as Lehman Brothers, and Merrill Lynch was undoubtedly the lucky one.

From this story, we can see the weight of financial intermediary structure in the process of business development.In addition to the financial intermediaries mentioned above, such as Merrill Lynch, Lehman Brothers, Hang Seng Bank, Sino-British Life Insurance, HSBC Hong Kong, Standard Chartered Bank, HSBC... are all famous financial intermediaries in the world.Having said so much about financial intermediaries, what are financial intermediaries?

Financial intermediaries refer to the economies that absorb funds from surplus units, provide them to deficit units, and provide various financial services.It is an intermediary organization that absorbs funds from fund suppliers and then transfers funds to fund demanders.Its functions mainly include credit creation, settlement and payment, resource allocation, information provision and risk management.

Since the 20s, especially since the 50s, there have been many new changes in the development of financial institutions, and large-scale and all-round financial innovations have appeared in the financial industry. At the same time, with the development of international investment by multinational companies, financial intermediaries have also Gradually expand overseas.Under the promotion of these conditions, the development of financial intermediaries has also undergone many new changes, which are mainly manifested in: financial institutions continue to innovate in business, and the direction of development tends to be comprehensive.Mergers and reorganizations have become an effective means of integrating modern financial institutions, which has prompted the continuous emergence of large-scale cross-border financial intermediaries, thereby accelerating the continuous innovation of financial institutions in organizational form.At the same time, the operation and management of financial institutions are also frequently innovating. However, the risks of financial institutions have become greater and the requirements for technical content have become higher and higher.

In order to realize the intermediary function, financial intermediaries usually issue various secondary securities, such as time deposit certificates, insurance policies, etc., in exchange for funds.Because the subordinated securities issued by various financial intermediaries vary widely, economists classify financial intermediaries according to these differences.Generally speaking, financial intermediaries that issue monetary subordinated securities such as passbooks and certificates of deposit are called depository monetary institutions. These subordinated securities issued by depository monetary institutions account for the majority of depository monetary institutions' liabilities. part of the money supply.As for the secondary securities issued by non-depository monetary institutions, such as insurance policies, etc., they account for most of the liabilities of non-depository monetary institutions, and these secondary securities are not part of the money supply.

Generally speaking, there are mainly the following types of depository monetary institutions and non-depository monetary institutions:
1. Deposit monetary institutions: including commercial banks, specialized banks, grassroots cooperative financial intermediaries, and the Central Trust Bureau.Among them, specialized banks include SME banks, industrial banks, and agricultural banks, while grassroots cooperative financial intermediaries include credit unions, etc.

2. Non-deposit monetary institutions: including trust investment companies and insurance companies.

According to the definition, we can understand that financial intermediaries are actually designers and traders of financial products.In business activities, enterprises need to invest and raise funds in the financial market, and also need to prevent and avoid potential market risks, and may also need to restructure the business they are engaged in and the assets they own.These activities must use some financial products to complete.As designers and traders of financial products, financial intermediaries should clearly understand the needs of enterprises, design financial products according to the actual needs of enterprises, and more importantly, actively help enterprises choose financial products correctly, so as to better help enterprises Enterprises, healthy and sustained rapid development.

[links to related words]

A financial intermediary refers to a person or institution that acts as an intermediary or bridge between fund suppliers and demanders in the process of fund financing.

In the process of investment and financing, restrictive contracts will inevitably have risks.Restrictive contracts are one way people use to reduce moral hazard.Although restrictive contracts can help reduce the moral hazard problem, it does not mean that it can completely eliminate its occurrence.It is almost impossible to formulate a contract that excludes all risky activities.

(End of this chapter)