This paper seeks to stimulate thought and discussion regarding the future of regulation and the evolution of the financial sector. This first part seeks to offer an understanding of why certain types of transaction may occur only in banking markets, while others may arise either via banks or securities markets. The main theoretical section applies to a rather stylised version of traditional retail banking, but this is generalised in Section (2) to cover recent structural developments such as securitisation and wholesale banking.
The theoretical analysis is used in a third section to analyse the nature of banking regulation in the light of the theories of intermediation, and in a fourth to suggest approaches to wider regulatory and structural issues. Particular attention is paid to the role and future viability of banks and the appropriate scope of regulation.
