Convergence of Global Financial Services

Speech given at Session 1: The Global Capital Market: What’s Next. Michael Patterson spoke on aspects of the global financial markets that are common to Japan and the United States including the converging roles of traditionally distinct kinds of institutions participating in such markets; the impact of that convergence on legal and regulatory structures, particularly in the United States; and finally, the challenges of such global convergence for the supervision of global financial institutions. CONVERGENCE OF GLOBAL FINANCIAL SERVICES Michael E. Patterson* Thank you all for including me in this distinguished group. Despite the differences between Japan and the United States, I'd like to focus my remarks this morning on three aspects of the global financial markets that I think are common to both Japan and the United States, and, indeed, across the globe: first, the converging roles of traditionally distinct kinds of institutions participating in such markets; second, the impact of that convergence on legal and regulatory structures, particularly in the United States; and finally, the challenges of such global convergence for the supervision of global financial institutions. I won't dwell long on the macroeconomics, except to remind us that the explosive growth in global financial markets is driven by a variety of well-reported factors: the impact of demographic changes on world savings, which Paul Volcker mentioned;1 trends toward less government control of financial activities, including liberalization, deregulization and opening of national markets, and the privatization of state-owned enterprises; and information technology that has reduced geographic distances, quickened the pace and reduced the cost of transactions, and enabled the rapid evolution of new financial products and techniques. Chief among those techniques is securitization, that is, the various ways by which financial assets increasingly become tradeable, directly or indirectly, in liquid markets. As Paul Volcker reminds us, globalization and, indeed, securitization are not new trends, but I believe they are still in their relative infancy. It is estimated, just to give you one prediction, that the global market for tradeable financial assets, including money, is expanding at about three times the rate of the real economy, and that by the year 2000 the world's liquid stock will be three times the then-US$27 trillion nominal GDP of OECD 2 * Vice Chairman, J.P. Morgan & Co. Incorporated. 1. See Paul A. Volcker, Perspectives on Global Capital Markets, 21 FoRDmI.t INT'L L.J.