In the past thirty years, financial systems around the world have undergone revolutionary change. People can borrow greater amounts at cheaper rates, invest in a multitude of instruments catering to every possible profile of risk and return, and share risks with strangers across the globe. Financial markets have expanded and deepened, and the typical transaction involves more players and is carried out at greater arm’s length. At least three forces are behind these changes. Technical change has reduced the cost of communication and computation, as well as the cost of acquiring, processing, and storing information. Deregulation has removed artificial barriers preventing entry of new firms, and has encouraged competition between … Continue reading Raghuram Rajan