LSE Economics Professor: Disruption Will Help Stabilize Financial Industry

Stabilization in the financial system—that became almost paramount especially after the financial crisis in 2008 when toxic assets like subprime mortgages helped to upend the financial markets and spur the Great Recession. More controls have been put in place in order to prevent another catastrophe, but the industry isn’t completely immune—nonetheless, disruption could help nullify the impact of a crisis when the next one hits.

Note the word “when” rather than “if.”

“It’s been 10 years since the financial crisis and there will be another one. We need to think about financial stability and will digital services help that,” said Dr Keyu Jin, associate professor of economics at the London School of Economics, during the World Economic Forum in Davos, Switzerland. “There are several problems, there is a lack of country coordination [on stability models]and the developed countries have a zero-interest rate phenomenon, which is fuelling financial instability. There’s also a chronic lack of aggregate demand. When there was the last financial crisis, the US Fed had central swap lines — emerging markets (despite having 50% of the world’s GDP) were not included. We need coordination as the current environment is not looking very good.”

One of the areas that could help provide stabilization is technological advances in the financial sector. This has spawned the rise of financial technology or simply “fintech.”

According to a report by the Financial Stability Board (FSB), “technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients.”

As such, investors may want to consider getting fintech exposure via ETFs. ETFs to look at in the growing fintech space include the Global X FinTech ETF (NasdaqGM: FINX) and the ARK Fintech Innovation ETF (NYSEArca: ARKF).

ARKF invests in equity securities of companies that ARK believes are shifting financial services and economic transactions to technology infrastructure platforms, ultimately revolutionizing financial services by creating simplicity and accessibility while driving down costs.

FINX seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Fintech Thematic Index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that provide financial technology products and services, including companies involved in mobile payments, peer-to-peer (P2P) and marketplace lending, financial analytics software and alternative currencies, as defined by the index provider.

For more market trends, visit ETF Trends.