But
as banks and insurance companies merged into what is termed, in French,
"bancassurance", or, in German, "Allfinanz" - so did their hedging and
insurance operations.
In his paper "Risk Transfer between Banks, Insurance Companies, and
Capital Markets", David Rule of the Bank of England flatly states:
"At least as important for the efficiency and robustness of the
international financial system are linkages through the growing markets
for risk transfer. Banks are shedding risks to insurance companies,
amongst others; and life insurance companies are using capital markets
and banks to hedge some of the significant market risks arising from
their portfolios of retail savings products ... These interactions
(are) effected primarily through securitizations and derivatives. In
principle, firms can use risk transfer markets to disperse risks,
making them less vulnerable to particular regional, sectoral, or market
shocks.
Greater inter-dependence, however, raises challenges for market
participants and the authorities: in tracking the distribution of risks
in the economy, managing associated counterparty exposures, and
ensuring that regulatory, accounting, and tax differences do not
distort behavior in undesirable ways.
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