In this series, I delve into the lesser-known corners of financial markets, focusing on underlying market microstructures and the people who influence them. Through original analysis and interviews with market participants, this series offers a nuanced understanding of market stability and the origins of financial crises.
Despite the increasing complexity of the global financial system, current economic theories often explain financial instability only after it occurs, neglecting the structural aspects of derivatives markets, payment systems, and collateral supply chains. It is typically only during financial crises that the intricacies of financial markets become apparent to the wider public.
In contrast, in this project, I continuously examine the stability of the financial system by analyzing the quality of the financial plumbing behind four key financial flows: (1) the flow of collateral arising from firms’ industrial organization; (2) the flow of risks; (3) the flow of funds, stemming from the hierarchy of funding markets; and (4) the flow of payments, resulting from system-wide liquidity transformation. These components are collectively known as Market Microstructure.
