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Modern financial theories based on the economics of information suggest that banks arise as a response to existing frictions in the process of acquiring information and making transactions. Bank intermediaries ameliorate such frictions through brokerage (which enhances the matching of borrowers and lenders by overcoming information asymmetries) and portfolio transformation (banks acting as delegated monitors and providing liquidity insurance). The way banks perform these functions — their ‘financial technology’ — changed dramatically in the 1970s on a global scale. We define financial technology as a body of knowledge that specifies the whole range of activities creating economic value in financial intermediation, encompassing product, process and organizational technologies. Financial innovations occur in each of these areas and improve the efficiency with which intermediaries perform their basic functions by expanding opportunities for risk sharing, lowering transaction costs and reducing asymmetric information and agency costs (Merton 1995: 463). These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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