This article offers a comprehensive 'road-map' of the ever more complex network of the three main intermediation channels of financial flows between ultimate sources and users of funds, that have made global financial markets more innovative and efficient over recent years, and seen classic banking functionality in long-term global decline in favour of capital markets.
Next, the author considers the pattern of client, product and geographic linkages, and examines the drivers behind the industry’s structural changes toward international diversification and consolidation. Taking aim at their underlying rationality, he examines the claims for cost and revenue economies of scale, scope and size behind the sector’s appetite for internationalising growth - and for each economy he uncovers equally persuasive arguments for potentially nullifying diseconomies.

Finally, he reviews the steps and effects of the banking crisis, tracing its roots in the fragility associated with the drive to innovation, the heavy concentration of global financial intermediation and on the mix of dodgy credits and risk management based on models ‘incapable of capturing the real world’ relied on by firms in search of ever larger profits. He reviews the problems of ‘Too-Big-To-Fail’ bailouts, and the associated moral hazard and inevitable regulatory response, and proposes a financial version of the environmental ‘Polluter Pays’ principle – that those who cause ‘financial pollution’ must pay to clean it up - as a leading light to guide navigation toward more stable future financial markets.

Woven together, these strands all add up to the story of the banking crisis - and there are lessons. Above all he finds that increased size is no reliable route towards increasing profits – but that ‘plain old good management’ still represents the best bet.

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