Chart 4: UK market concentration and mark-ups Sales-weighted markup (per cent)  6 5 4 3 2 1  y = 0.2132x + 1.4031 R² = 0.0014  0 0  0.1  0.2  0.3 0.4 0.5 Market concentration (HHI)  0.6  0.7  0.8  Sources: ONS, Thomson Reuters Worldscope and Bank calculations. Notes: Data show market concentration and the average firm-level mark-up at the 2-digit sectoral level. The market concentration metric shown here, the HHI, is normalised to be between zero and one. While the relationship shown here – at the sector level – is only weakly positive, the relationship between firm-level mark-ups and the HHI is statistically significant in a regression when firm and time fixed effects are included. Mark-ups also exhibit a positive relationship with other broad measures of profitability, such as the dividendsto-sales ratio and the market capitalisation-to-sales ratio. 26  All speeches are available online at www.bankofengland.co.uk/speeches  26  Chart 5: UK-listed firms’ sectoral mark-ups Mining and Quarrying Manufacturing Construction Wholesale and Retail Transport and Storage Accommodation ICT Professional, scientific and technical Administrative and support Other service activities  Cumulative change in the mark-up since 1987 (Δ0.5=50pp) 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4  Note: the Arts, entertainment and recreation sector is excluded. -0.6 1987  1990  1993  1996  1999  2002  2005  2008  2011  2014  2017  Sources: Thomson Reuters Worldscope and Bank calculations.
Overall, the reforms in these markets, along with the regulatory reforms to the oversight of financial institutions, should result in more robust system of credit intermediation, whether it is taking place through traditional intermediaries or through the markets more broadly. This reform process faces several important risks, though. First, there is a possibility that the process will stagnate or end up incomplete, given that the issues are complex, the stakeholders are numerous and the solutions are not always obvious. Second, there is a risk that, with so many efforts taking place in so many areas, the results will not fit together into an effective, cohesive solution. And third, there is the risk that the pursuit of reform will be overly zealous, resulting in a set of restrictions that will significantly undermine the functioning of financial markets during normal periods and thereby impede employment and growth. On this last point, it is worth making a few observations about the functioning of financial markets as we think about how to encourage a safe and yet efficient financial sector. These points may be obvious but are worth emphasizing. First, securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy. Securitization can be quite effective at transforming illiquid assets into negotiable securities and transferring risk to a more diversified set of holders. To be sure, the expansion of securitized credit was much too extensive, and its subsequent collapse was terribly disruptive, contributing significantly to the damage to the economy.