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Unformatted text preview: the net regulatory burden on traditional FIs—such as banks and insurance companies—is higher than that on investment companies. As a result, traditional FIs are unable
to produce their services as cost efficiently as they could previously. Future Trends
The growth of mutual funds coupled with investors’ recent focus on direct investments
in primary securities may be the beginning of a secular trend away from intermediation
as the most efficient mechanism for savers to channel funds to borrowers. While this
trend may reflect changed investors’ preferences toward risk and return, it may also reflect a decline in the relative costs of direct securities investment versus investment via
FIs. This decline in costs has led to many FI products being “commoditized” and sold
directly in financial markets; for example, many options initially offered over the
counter by FIs eventually migrate to the public option markets as trading volume
grows and trading terms become standardized. As Merton has noted, fi...
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- Spring '09