In the aftermath of the financial crisis, organizations were founded to examine the risk of financial institutions. So-called Globally Systemic important banks (G-SIb’s) and Systemically Important Financial Institutions (SIFI’s) are deemed riskier regarding financial stability and therefore are subject to stricter regulatory demands. Today, there are indications that a new player might enter the field. In line with the broader trend of financialization in society, tech companies are becoming increasingly like investment banks. Their treasurers have become asset managers and they participate in a wide variety of activities not related to the core business of the company.
What does this mean?
Instead of reinvesting their earnings in cutting-edge technology, the biggest tech companies spend the lion’s share of their earnings on bonds , share buybacks and dividend payouts. Moreover, the lengthening of their balance sheets due to the buildup of huge cash piles, which are invested mostly in fixed-income assets, implies new systemic risks for society. However, these activities are part of the non-regulated and widely criticized shadow banking sector.
Tech giants have become a financial force that can shift markets, disrupt economies and redistribute great sums of wealth among citizens. Given the changed nature of these companies, in the nearby future we might expect more pressure from government and society that these companies should be regulated in accordance with their new activities. It is possible that the consequences of cash repatriation – following the U.S. tax reform – will demonstrate what global forces these tech companies have turned into within financial markets.