Jump to ContentJump to Main Navigation
Capital FailureRebuilding Trust in Financial Services$
Users without a subscription are not able to see the full content.

Nicholas Morris and David Vines

Print publication date: 2014

Print ISBN-13: 9780198712220

Published to Oxford Scholarship Online: October 2014

DOI: 10.1093/acprof:oso/9780198712220.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 28 November 2020

How Changes to the Financial Services Industry Eroded Trust

How Changes to the Financial Services Industry Eroded Trust

(p.32) 2 How Changes to the Financial Services Industry Eroded Trust
Capital Failure

Sue Jaffer

Nicholas Morris

Edward Sawbridge

David Vines

Oxford University Press

This chapter describes how the previous structure of the industry maintained relationships of trust. Financial firms were specialised, with retail and commercial banks managed separately from investment banks, which avoided potential conflicts of interest and contained moral hazard. Investment banks saw their role as serving clients and earning fees from doing so. However financial deregulation eroded the conditions required for trustworthiness. The industry consolidated into universal banks which were ‘too big to fail’, and greatly expanded demands for mortgages and pensions created commoditised services. The eventual dominance of ‘sales’ over ‘relationships’ people within universal banks created conflicts of interest between different employees and between employees and customers. It also saw the spread of high-powered incentives to sell products and to undertake excessive risk taking. The capital for proprietary trading was no longer provided by partners and instead the money from bank depositors, creditors, and ultimately taxpayers was put at risk.

Keywords:   financial deregulation, too big to fail, efficient markets, conflicts of interest, financial services, principal agent, asymmetric information, financial innovation, moral hazard, risk taking

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .