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    BIS Event on Implications of Financial Innovation for Central Banks

    February 12, 2020

    BIS held its 18th Annual Conference in Zurich, Switzerland, on June 28, 2019. The key issues under discussion were the implications of technological change for the financial system as well as the implications of financial innovation and the meaning of big data for central banks. BIS published the remarks of Claudia Buch, the Vice-President of Bundesbank; Norman Chan, the former Chief Executive of HKMA; and Jon Cunliffe, the Deputy Governor of BoE at the conference. Additionally, it published two working papers that were presented at the annual conference: one paper was on fintech and financial inclusion while the other one was related to behavioral screening by credit card companies.

    The working paper on fintech and financial inclusion offers preliminary evidence and theoretical analysis about the impact of technological progress in the finance industry. The paper investigates whether the rise of fintech has pushed down the unit cost of financial intermediation. The paper then asks whether the potential gains from fintech will have distributional consequences and investigates the role of machine learning and big data. The study concludes that fintech is not only likely to decrease the costs of financial intermediation, but also to create new regulatory issues. It shows that the unit cost of financial intermediation has fallen since the great financial crisis, concluding that fintech has made the financial sector more efficient.

    This paper develops a simple model of robo-advising, showing that the net effect of fintech on welfare crucially depends on the type and size of fixed costs it entails. Based on a model that features a new technology to analyze non-traditional consumer data, it was concluded that big data and machine learning will likely reduce human biases against minorities while eroding the effectiveness of existing regulations. The tentative conclusion is that fintech can bring widely shared welfare benefits but changes in existing policies and regulations are necessary to achieve its full potential. 

     

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    Keywords: International, Banking, Insurance, Securities, Fintech, Big Data, Financial Intermediation, Research, Machine Learning, Blockchain, BIS

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