Insurance: Just Part of the Financial Sector? [12]

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Bullet points include: Banks, Insurers. Monetary role industry mainly fulfils, A means of payment in exchange for goods and services, A store of value, permitting deferred consumption and smoothing. Other roles: Financial services, Risk pooling. Comparative advantage: Screen and finance short-term projects (as investors) invest long-term and gain from illiquidity premium. Core business activities: Largely asset-driven, often supported by leveraged balance sheets, Mainly liability-driven, less leveraged and often less exposed to ‘runs’. Exposure to systemic risk from any one firm? Higher, Lower. Risk that safety net costs fall on government? Higher (more ‘essential’ to current economic activity), Lower

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