From Nirvikar Singh is a professor of economics at the University of California, Santa Cruz:
What is finance for? - Columns - livemint.com:
"Discussions on how to improve regulation of the financial sector often are limited by starting from current institutions, and thinking of adjustments to these institutions. Boundaries between institutional categories, determined by historical legacies, are often taken as given. A more productive approach to considering regulatory reform could be to first answer the question, “What are the economic roles of financial institutions?” (invariably some form of intermediaries)Singh expounds on each of the seven showing what are the strengths (bringing buyers and sellers together) and weaknesses (many assets to not trade, experts are blinded by pay etc), and discusses how regulatory changes should take these facts into account.
What roles do financial intermediaries play? Here are seven examples."• Economizing on the costs of completing and implementing transactions.• Matching buyers and sellers.• Economizing on search costs.• Providing expertise.• Smoothing the market.• Providing reputation.• Transforming products.
Good stuff! Well worth a read.