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Insurance: Just Part of the Financial Sector? [9]

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Bullet points include: ‘Medium of exchange’, ‘Store of value’. Use: Exchange goods between economic participants (e.g. division of labour), Shift consumption along the timeline. If ceased to function? Essential, unless we want to return to barter, Money (if net off both sides of balance sheet) is not in aggregate typically a large part of a developed economy’s total asset base. Required features for function to be effective Short-term value stability and perceived ‘soundness’ of money, Ability to buy/sell what we want later, i.e. to have functioning markets. Parts of financial services industry most linked to role: Retail banking, commercial banking, Life insurance, asset management, investment banking. Typical focus of regulatory activity: Avoid undue calls on depositor insurance arrangements, Greater focus on providers ‘honouring their promises’. These two roles create different types of systemic risk exposures, see e.g. Besar et al. (2009)

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