Financial Intermediaries: The Relationship between their Economic Functions and Actuarial Risks

Abstract

Abstract The purpose of this article is to explain the economic functions of financial intermediaries and financial institutions. The risks that are commonly managed by actuaries, particularly in the insurance industry, (e.g. insurance risk, market risk, interest‐rate risk etc.) arise from the economic functions of financial institutions and from the process of financial intermediation. We show that there are substantial similarities between the economic functions of nonbanks (in which actuaries have commonly managed risk) and those of banks (in which risk has generally not been managed by actuaries – at least not in the UK and US). The implication of the analysis is that risk management techniques will become closer in the banking and nonbanking sectors and that the various risk management professions and academic groups will cross the sectors.