The Evolving Ecology of the Financial System

Workshop May 16-17, 2019 | MPIfG, Cologne


Benjamin Braun

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Kai Koddenbrock

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Workshop Rationale

The first two meetings of the research network focused on theories of money and financialization, and on balance sheets as an analytical lens for political economy. At the third meeting, we will apply this toolkit to study the main financial actors, their business models and their relationships. The goal of this collective exercise is to map – across time and across space – the changing ecology of the financial system.
Regarding actors, the discussion will be organized along sectoral lines. Most immediately bound up with credit money are banks. While banks have always been around, their business models have changed – lending has shifted from business to mortgage lending, securitization and derivative trading have increased. Capital markets, meanwhile, have been transformed by the proliferation and growth of institutional investors – mutual, index, hedge, private equity, venture capital, and sovereign wealth funds. On the ‘real’ side, corporations have ceased to be reliable net borrowers. In many countries, the corporate sector has become a net lender to the rest of the economy. Rising financial asset holdings on corporate balance sheets are the result. Households, too, have increasingly been drawn into finance capitalism. The asset side of household balance sheets shows rising holdings of financial assets, largely driven by the individuation of risks. On the liability side, households have accumulated more debt – mortgage loans, student loans, payday loans.
Regarding business models and relationships between these sectors, the workshop will focus on the creation, trading, and enforcement of financial claims. The creation of financial assets occurs through the process of "capitalization," "assetization," or, most conventionally, "securitization." Financial claims can be claims on future value produced through non-financial activities, or they can be created on the back of other financial claims. To a significant extent, the production of financial claims is a function of political decisions about institutional arrangements. A pension system organized on a pay-as-you-go basis does not generate demand for investable assets, nor does a taxpayer-funded university system. A pre-funded pension system and a fee-based higher-education system, by contrast, generate large stocks of assets and liabilities. The tradability of assets is a key variable when it comes to the geographical reach of financial claims. When the World Bank advises the African Development Bank to securitize and sell off loan book risks, that risk becomes a new, internationally tradable claim. Finally, in order to be of value, financial claims must be enforceable. While this is usually taken for granted in the domestic context, cross-border financial claims exist in the shadow of national sovereignty and the absence of a global judiciary.


MPIfG: Workshop "The Evolving Ecology of the Financial System" | [Last updated 05.04.2019 17:23]