Financial Intermediation and New Technology : Theoretical and Regulatory Implications of Digital Financial Markets

Technological progress in finance has been accelerating over the last decade. In the future, it is likely that financial intermediaries may undergo significant challenges as regards their traditional business model and functions, since an increasing share of payments may be settled without banks’ deposits and capital markets may increasingly provide direct credit to the economy. This paper aims to outline the theoretical and regulatory implications stemming from digital financial markets, with a particular focus on the growing importance of BigTech and FinTech firms. We study the importance of information and communication in financial intermediation and outline the impact of technological progress on the core functions traditionally performed by banks and other financial institutions, and on payment systems. In this context, we discuss the role of public policies, and the main issues for regulation, supervision, competition, and consumer protection