In the remainder of this talk, I will discuss three topics from the IO literature that seem promising for systemic risk research: first, the need for a deeper understanding of scale and scope economies in the production of financial services; second, the ways in which patterns of competition and cooperation among large financial firms can affect systemic risk; and third, how market structure can affect firm incentives and thereby impose externalities on the financial system.
Scale and scope economies in financial services Well before the financial crisis and my arrival at the Federal Reserve, I had found that the relative dearth of empirical work on the nature of economies of scale and scope in large financial firms hindered the development and execution of optimal regulatory and supervisory policies.