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2021 | Book | 1. edition

Financial Markets Evolution

From the Classical Model to the Ecosystem. Challengers, Risks and New Features

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About this book

Influenced by technological innovation, banks and their businesses are changing dramatically. This book explores the transformation and prospects of financial market institutions (banks, insurance companies, pension funds and microfinance organizations) in the context of the development of financial innovation, financial engineering and financial technologies, taking into account risks and new opportunities for development. It presents new approaches to the sustainable development of financial and credit institutions, taking into account the risk management and crisis management of their activities in the macro and microeconomic environment. Contributors from Russia, Kazakhstan, Azerbaijan, Mongolia, Ireland and Italy present their expert opinions on the practice of financial intermediaries in the conditions of economic transformation under the influence of the 4th Industrial Revolution and the Covid-19 pandemic.

This book includes some of the key debates in this area including the genesis of financial markets in the paradigm of economic digitalization, the evolution of financial intermediaries from the classical model to the ecosystem, and the regulation of neo-banks. The book will be of interest to academics and practitioners in various spheres of theoretical and empirical knowledge, including economics, finance and banking, who are interested in investigation of the complex of fundamental (international and domestic) trends in the development of financial intermediation in the globalized financial markets.

Table of Contents

Frontmatter
Introduction
Abstract
The monograph examines a complex of fundamental (international and domestic) problems in the development of financial markets in the context of the economy digitalization in the modern world. The authors invite the reader to explore current trends in the development and improvement of banks (central and commercial), insurance companies, pension funds in the digital economy. Changing market environment, volatility of financial markets as well as insufficient knowledge of the issues of financial stability in the economy, indicates relevance of the issues raised in the boor. It reflects the theoretical and applied issues that banks are facing, which, due to their status and peculiarities of capital formation, are called upon to make a significant contribution to the revival of business activity after the crisis caused by the COVID-19 pandemic.
Galina Panova
Financial Markets: Current Trends and Factors that Determine the Functioning of Financial and Credit Institutions
Abstract
The article considers topical issues of how financial markets are developing in the new realities of the digital economy and presents the results of research on theoretical and practical aspects of international capital flows, revealing the main advantages of direct investment over the portfolio and other investments, the activities and functions of transnational banks in modern conditions; problems and prospects of using digital technologies in banking practice. The methodology uses scientific abstraction, system and factor analysis, methods of grouping, detailing, and synthesis. The obtained results allowed us to reveal the important role of private equity funds in developing financial and credit institutions, as well as to reveal the tendency of improving the intermediary function of banks on the modern stage of digital technologies’ development.
Irina Yarygina, Tural Mamedov
Paradoxes of Financial Market Institutions: Traditions and Ecosystems
Abstract
The chapter presents current issues of the banking business’ innovative transformations. The topic is relevant for banks: (a) from the economic science point of view, since until now the conceptual apparatus of not only the types of bank business models but also the definition of bank business models and their ecosystems remain controversial; (b) in practice the applying of new strategic solutions is needed to solve the triune task: to ensure profitability of business while maintaining liquidity and minimizing risks. The chapter presents controversial issues of theoretical understanding and practical application of bank business models; shows how the traditional financial markets are changing when innovative business models of modern banks are being introduced.
Galina Panova
The Role of Financial Intermediaries in Digital Economy Development (Chapter23)
Abstract
In this chapter, the authors consider the role of financial intermediaries in the development of the digital economy as the basis for ensuring the dynamic and sustainable growth of the economy of Kazakhstan. The authors aim to identify the existing problems in the context of the participation of financial intermediaries in the implementation of real innovations. In the course of the study, descriptive methods, the method of expert assessments, comparative analysis methods, the method of economic and mathematical modelling and the graphical method were used. The study confirmed the hypothesis that the existing, including resource potential of domestic financial intermediaries is not used effectively both for the latter and for the development of the country’s innovation sector.
Alla Dvoretskaya, Aibota Rakhmetova, Gaukhar Kalkabayeva
Internationalization of Financial Markets: World Financial Centres
Abstract
The chapter analyses the processes of financial markets and global financial centers development. It is revealed that internationalization has provided a subjective division of financial markets, aggravated the growing confrontation between traditional financial institutions and entities with lower costs when selling financial products and financial services. This makes it necessary to reformat the business models of financial organizations and to measure financial markets’ digitalization. The deformation of the traditional structure of financial markets ought to take place alongside the expansion of alternative financial mechanisms under the influence of the internationalization of tool-financial technologies and the weak flexibility of financial institutions. It is proved that technological innovations have predetermined changes in the financial market in developing its infrastructure, subject composition, products, and the regulator’s role.
Vitalii Klevtcov, Artem Zamlelyy
New Challenges for Financial Market Infrastructure Risk Management Systems
Abstract
The chapter analyses the modern stage of financial infrastructure development; efficiency enhancement potentials of financial market institutions and their prospects that may be taken into account by state governing bodies, regulators, financial market institutions and the legislature. The study reflects theoretical and practical issues of the work of infrastructure institutions (exchange markets, central counterparties and central securities depositories), which, in the light of their status and their special functions, are intended to greatly contribute to minimizing systemic risks as well as to revive business activity during the acute phase of and after the economic crisis caused by the COVID-19 pandemic. Based on the theoretical summary, the analysis, and the assessment of financial market institutions’ efficiency, the further development areas were determined.
Dmitry Panov
Payment Systems in Digital Economy
Abstract
Digital technologies are changing business models and business process management systems in banks. The fintech phenomenon—a combination of technology and innovation—is creating a completely new competitive environment in which credit institutions, as traditional financial intermediaries, face virtual cryptocurrency emission centres that also account for the movement of payment and settlement means. The payment system does not just enter the virtual space but acquires a new quality. The chapter compares traditional payment systems with virtual ones. The object of the research is payment and settlement systems, the subject of the research is the features of the payment systems that make payments and settlements in cyberspace and are based on the blockchain technology.
Aleksei Bolonin, Vladimir Balykin
Role of National Currencies in Transforming International Monetary System
Abstract
The chapter provides a brief overview of use of  Euro and Chinese Yuan for international operations. Availabe date shows that the process of transformation of the international monetary system as a result of substituting US dollar with other currencies happens at a very slow pace. European and Chinese experience confirmes that government support followed by interaction with global market participants, macroeconomic stability and financial market development is requred for national currencies promotion in international operations.
Vladimir Shapovalov
Monetary Policy: Global Trends and the Development of Bank of Russia’s Approaches
Abstract
The chapter discusses current global trends in monetary policy, including the expansion of the inflation targeting regime and a loose monetary policy amidst the COVID-19 pandemic. Mostly, it focuses on the experience of Russia, as well as that of other Eurasian Economic Union (EEU) member countries, in the context of forming a single monetary policy. Based on the results of this article the author argues that it is possible to form a single monetary policy within the EEU in the long term, provided that a number of the following conditions are met: introducing a single medium-term target for inflation, implementing a single exchange rate policy and coordinating the monetary policy of the EEU countries at the supranational level.
Veronika Zagoyti
Financial Innovations, Financial Engineering and Financial Technologies: Risks or New Opportunities? Innovations and New Financial Technologies in the Practice of Banking
Abstract
Information technology (IT) and artificial intelligence (AI) currently penetrate all areas of life as a result of the Fourth Industrial Revolution. Banking is one of the most successful examples of using IT and AI. This chapter discusses the contemporary achievements of the financial sector and the threats associated with the use of new technologies. The authors use the method of comparative analysis. The study focuses on credit institutions, with its broader subject matter being the activities of credit institutions in a virtual cyberspace, which creates not only new opportunities, but also new threats and risks. The development of digital ecosystems capable of satisfying the entire range of customers’ vital needs, including non-financial ones, is supposed to be the next stage in the evolution of credit institutions.
Aleksei Bolonin, Igor Turuev, Vladimir Balykin
Banks and Banking: New Trends and Challenges
Abstract
The latest United Nations Report on Global Sustainable Development (GSDR, 2019) considers mail trends and challenges for banking, as well as what is ahead for banking management and governance in the IT-dominated era. In a discussion of whether Artificial Intelligence (AI) will be capable of assuming the banking leadership, we analyse the tasks carried out by managers and identify the capabilities of AI in this respect. The understanding of benefits as well as challenges with the emerging importance of AI could be helpful in shaping banking governance in the nearest future.
Marco Ricceri, Valentina Tarkovska, Irina Yarygina
Transnational and Regional Banks
Abstract
The article analyses the positive and negative aspects of the work of transnational and regional banks. The research topic is relevant due to the increasing role of transnational banks in the global financial economy and the problem of maintaining the competitiveness of the country’s regional banks against the background of trends in the consolidation of financial and credit institutions, as well as large-scale banking sector digitalization. Based on the analysis, recommendations are given on the development of transnational and regional banks and the regulation of their activities.
Elena K. Volkova
Analysis of Banks with State Participation Functioning the Role of Development Banks in the Global and National Dimensions
Abstract
The chapter deals with results of evaluating the development of banks with state participation and the functioning of development banks in the global and national dimensions. It presents and interprets theories of banking with state participation—social, political and agency. It is concluded that a bank with state participation is the result of positioning the need to achieve the following goals: ensuring the security and stability of the banking system; levelling market failures due to information asymmetry; financing social investments; ensuring financial development and access to competitive banking products and services for customers. It is proposed to use the potential of new development banks; this could achieve national interests and solve the problem of expanding the set of financing sources for capital-intensive infrastructure projects.
Vitalii Klevtcov, Artem Zamlelyy
Insurance Companies: Prospective Business Models
Abstract
This chapter is devoted to the relevant issue of identifying the key features characterizing the development of the insurance market in a changing economic paradigm. The research determines that the insurance market, although it has several differences from others, can nevertheless be successfully analysed from the perspective of institutional theory, and research of its architecture will improve the efficiency of the implementation of development strategies by an insurance company. The result of this study was a methodologically more complete assessment of the signals characteristic of the insurance market, which allows the relationships between participants to be evaluated and considered as an essential element of its architecture. An analysis of the digital transformation processes in insurance has revealed the most promising business models.
Natalia Adamchuk, Vladimir Osipov, Lyudmila Tsvetkova
Insurance of Financial and Credit Institutions
Abstract
The chapter discusses the role of financial and credit institutions in ensuring economic stability, through the coordination of their interaction between investors, borrowers and lenders. It is stated that economic agents’ propensity for saving correlates with the propensity for insurance, which allows for the creation of convergent insurance products based on banking and insurance services. The study checks the hypotheses put forward about the correlation of income level, the propensity to save and the need for insurance protection of potential consumers. Based on the results of the analysis, a conclusion was drawn about the usefulness of convergent insurance products for the households living in poverty, providing repayment of loans for their constructive activities and the way out of poverty.
Natalia Adamchuk, Vladimir Osipov, Lyudmila Tsvetkova
Pension Funds and Prospects for Reforming the Russian Pension System as a Condition for the Qualitative Implementation of the State’s Social Policy
Abstract
The modern state is characterized by a social policy aimed at paying pensions to the disabled. Researchers say that the ideal pension system or its model has not been created, either in theory or in practice (Startseva and Vorobyeva, Aspirant, 3:85–86, 2016), but each country is trying to build such a system that would correspond to its economic development. The article examines various models of pension systems, the comparison of which allows us to identify their features and determine the directions for improving and reforming the national pension system.
An analysis of foreign experience in reforming the country’s pension system shows that the optimal model of pension implies a transition to corporate plans of voluntary and quasi-voluntary pensions, all the while maintaining state subsidies for private pension savings.
Aleksei Bolonin
Microfinance Organizations in Russia and Abroad
Abstract
The chapter analyses activities of microfinance organizations (MFOs) in Russia and abroad: their essence, foundations, activities, problems, and prospects. The authors aim to identify the features and difficulties in the work of MFOs in Russia and propose mechanisms for solving the problems MFOs are facing. The article was prepared using a systematic approach, statistical methods, and generalization and analysis of open sources statistical data. The chapter shows the differences in the approach to defining small- and medium-sized enterprises in Russia and abroad. The conclusions and proposals formulated in the chapter can be used by a wide range of users, including government bodies, when analysing and improving microfinance sector regulation.
Ksenia Trushina, Olesya Gracheva
Sustainability Trend in Russian Banking Sector
Abstract
The article analyses the involvement of the Russian banking sector in the implementation of the UN Sustainable Development Goals in order to determine its extent and nature. The research was carried out using the content analysis method and the sustainable banking performance framework. The results of the study revealed the following: (i) large Russian banks are taking active steps towards sustainable development, although it is not their priority; (ii) Russian banks are involved in sustainable development by dealing with social projects, while the green banking products and services are not developed enough; (iii) private and state banks with Russian capital demonstrate a higher commitment to implementing sustainable development programmes than those with foreign capital. The results section is followed by discussion and recommendations.
Amin Babazade
Responsible Principles in Banks: Short-Term Trend or Inevitability?
Abstract
The article covers the analysis of economic feasibility of the PRI principles implementation into banking operations. We tested hypothesis that analysis of ecological, social and corporate risks of potential borrowers could improve the efficacy of banks’ credit policy and that the effective management of ESG risk of the bank itself could lead to a decreased cost of funding and may be an important competitive advantage in head-hunting for talents. In the course of the study, all three hypotheses were confirmed and therefore we highlighted existing economic feasibility of introducing principles of responsible investing in banking operations. On its turn the confirmed feasibility should lead to wider implementation of PRI principles in banking operations all over the world.
Inal Kishmariya
Managing the Risks of Financial Intermediaries: Transforming Approaches and Reality
Abstract
The chapter analyses the current state and prospects for the development of risk management systems for financial intermediaries. The risk acceptance, assessment, and management activities are constantly evolving, remaining very sensitive to external and internal factors that increase the risks. The main trends in the development of risk management systems in the field of financial intermediation are rapid technologies evolution, competition intensification, growing needs and demands of customers, emergence of new types of risk, profitability reduction, etc. Risk management requires transforming operating models of financial intermediaries’ business, strengthening the role of the analytical function in decision-making, and adjusting risk appetite. This chapter is devoted to the study of these problems in terms of theory and practice of risk management.
Dmitry Panov, Irina Larionova
Problems of Ensuring the Financial Stability of Financial and Credit Institutions in the Digital Economy
Abstract
Applied and theoretical issues of ensuring financial stability remain to be discussed. These include the ability of regulators to identify risk factors in a timely manner, to assess the consequences of microprudential regulation, the feasibility of achieving a balance between monetary policy goals and financial stability policies, and an important theoretical issue regarding the interpretation of financial stability in the financial intermediation sector. These and other issues are reflected in this chapter. In this regard, the purpose of this study is to formulate proposals aimed at solving the problems of ensuring financial stability in the financial service industry, taking into account the results of a generalization and systematization of both Russian and foreign authors and their regulatory practices.
Irina Larionova, Dmitry Panov
Crisis Regulation by Financial Intermediaries
Abstract
The work of financial intermediaries in different periods and, especially, over the past decades is under scrutiny not only by investors and lenders but also by regulators and governments. This is since compliance with business rules established by regulators and prudential requirements for financial market participants have long made it possible to quite successfully overcome the emerging market failures. This chapter is aimed at analysing and assessing the anti-crisis regulation of financial intermediaries’ work in modern conditions, new challenges and problems that will allow the institutions dealing with financial regulation and supervision to learn certain lessons. Particular attention is paid to theoretical and methodological problems of financial intermediation crises, their regulation and preventing systemic risks.
Irina Larionova, Kirill Gorelikov
Banking Stress Testing
Abstract
The chapter is dedicated to stress testing the banking sector liquidity. The purpose of the study is to develop and justify a stress test pattern for evaluating the banking sector exposure to liquidity risk, as an alternative to the methods used by Basel Committee on Banking Supervision (Basel III). The chapter defines the main sources of the liquidity loss risk while justifying the importance of adequately assessing the credit risk as the main risk factor, to evaluate the liquidity loss for the Russian banking sector. The results evidence material influence of corporate portfolio credit risk on banks liquidity. The stress test results show the relevancy of the regulator and the bank management closely monitoring the credit portfolio quality management of the Russian banking sector.
Elena Meshkova
Mega-Regulation of Financial Markets
Abstract
The chapter discusses issues of institutional changes in banking regulation in the context of globalization and the economy digitalization. Arguments on the issue of a single platform for the mega-regulation of financial markets are considered and analysed. The research methodology led to the conclusion that there will be various forms of cooperation between traditional financial intermediaries and FinTech companies or market division between them. It is proved that the Bank of Russia will focus on implementing its monetary policy, intersectoral stress testing of financial institutions, and supervision of systemically important credit organizations. The recommendations for the transition to an integrated model of financial regulation and further development of the financial market regulation are represented.
Vitalii Klevtcov, Artem Zamlelyy
Conclusion
Abstract
The monograph deals with the issues of financial markets’ innovative transformation. The topic is relevant: (1) from the point of view of economic science, since until now the conceptual apparatus of financial intermediaries’ business models are still controversial; (2) in practice new strategic solutions for financial institutions are needed to ensure profitability of business while maintaining liquidity and minimizing risks.
The book covers the most urgent problems associated with assessing the prospects for transforming the business models of financial intermediaries and the efficiency of financial markets. It reflects the theoretical and applied issues faced by banks, which, due to their status and characteristics of capital formation, are called upon to make a significant contribution to the revival of business activity.
Galina Panova
Backmatter
Metadata
Title
Financial Markets Evolution
Editor
Galina Panova
Copyright Year
2021
Publisher
Springer International Publishing
Electronic ISBN
978-3-030-71337-9
Print ISBN
978-3-030-71336-2
DOI
https://doi.org/10.1007/978-3-030-71337-9