The Growth of Finance as % of GDP

Source: Philippon (AER 2015) "Has the U.S. Finance Industry Become Less Efficient?"

in a nutshell: why people choose to work in finance

Workers in the Finance Industry benefit greatly from growth of finance

• Philippon and Reshef (QJE 2012):
  • 1980: wage financial services=wage other industries​
  • 2006: financial services=170% x other
• ​​​Goldin & Katz (AER 2008)
  • ​​1969-74: 6% of Harvard grads went to Fin Industry
  • ​2006: 28%
• Oyer (JF 2008):
  • ​​wages Stanford GSB grads in finance industry
    • ​​300% of wages in non-finance

What happened? Old days...

What happened?

=

+

Main Structural Change

Main Structural Change

Moore's Law: the future

Much of the financial industry will see similar changes as the world of trading!

What is it that a bank does?

obtain & store information/data

process information

make decision

allocate capital

monitor and revise

automation

!

!

?

AI?

AI?
ECO?

The Sell Side

• sell services to investors and customers
• mainly banks & brokers
• services include
  • accounts
  • research
  • execution services

The Buy Side

• buyers of services
• mainly institutional investors
  • mutual funds
  • hedge funds
  • endowments, pension funds etc

A Taxonomy of the Financial Industry Ecosystem

Vendors and Services

• develop service products that help run FI businesses
• examples are tech suppliers (including big firms like IBM), exchanges

Regulators

• securities and banking regulators
• Bank of Canada, OSC, SEC, IIROC, FINRA

Let's look at a Big Bank: What does it do?

loans/credit

deposits

consumer

business

consumer

business

securitization

trading

clients

market making/prop

investment banking

M&A

securities issuance (debt/equity)

credit cards

insurance

investment advice

payments