the risk management practices of previously separate financial firms. while merging risk management practices may be straightforward for firms consolidating within an industry, such a readjustment is likely far more complex for firms originating in different industries. furthermore, the challenges of managing a merger of diverse firms and the operation of the resulting conglomerate are substantial. the operation of a financial conglomerate requires the ability to integrate the financial activities, research and development investments, pricing decisions, compensation practices, cost containment activities, and cultures of an extremely large and diverse organization. before any steps toward conglomeration are taken, each potential participant in such a merger must judge whether this extraordinary set of skills is to be found in any managerial team. however, having raised the cautionary flags about the prospects for financial conglomerates, i should add that various considerations suggest that the financial conglomerate format in the future may be successful for at least some firms. from the management perspective, technological developments should help provide more detailed information for monitoring the various activities of the firm and allow the application of more sophisticated risk management models. past experience with conglomeration may also provide new insights for managing product integration more effectively. on the demand side, retail customers may become more receptive to one - stop shopping as the range of services increases and as new opportunities for accessing these services become available. iii. how might the financial services sector evolve? the extraordinary changes occurring in the financial sector make projections about how the sector will evolve quite speculative. nevertheless, it is useful to consider how the future might look as both industry participants and regulators plan to meet that future. i would like to offer some prognostications based both on systematic projections using historical experience and on analogies and informal observations of current trends. systematic projections on consolidation the commercial banking industry, which is the largest single component of the financial sector, has experienced massive consolidation since 1980. for example, the number of banking organizations in the us fell from around 12, 300 in 1980 to just under 7, 200 by the end of 1997. not surprisingly, the percentage of banking assets held by the top 10 banking organizations rose from about 20 percent in 1980 to nearly 35 percent in 1997, while the share held by the top 25 increased from about 33 to 53 percent. despite the large amount of consolidation and increase in banking concentration at the national level, banking concentration within local market areas ( msas and non - msa counties ) has, on average, hardly changed over the past decade. for example, the average her

become especially weak. a stark case in point is the global financial crisis, when plummeting demand for investment and durable goods - - two highly traded expenditure categories - contributed to the sharp 4 percentage point fall in the ratio of world trade to gdp. the special weakness in some components of demand has persisted beyond the crisis and could also explain some of the recent sluggishness in trade relative to gdp. in particular, as you can see from the middle two bars of slide 5, the slowdown in world investment growth - - from about 4. 5 percent growth before the global financial crisis to only about 3 percent growth since 2011 - - has been international monetary fund ( 2016a ) ; see also organization for economic co - operation and development ( 2016 ), european central bank ( 2016 ), and hoekman ( 2015 ). more pronounced than the slowdown in world gdp growth or in world consumption. but the differences are not huge, suggesting that this explanation can go only so far. indeed, research suggests that other factors are also important in accounting for the slowdown in world trade. 6 one such factor is the deceleration in the pace of trade liberalization policies. from the early 1990s through the mid - 2000s, trade barriers were coming down rapidly, including the signing of the north american free trade agreement in 1994, the 2001 entry of china into the world trade organization, and the 2005 expiration of the multifibre agreement restricting textile imports to the united states and european union. these changes resulted in the most rapid increases in the trade - to - gdp ratio since 1870. as the pace of trade liberalization has slowed in recent years, perhaps reflecting limits to further gains from trade agreements, it is only natural that the trade - to - gdp ratio should flatten out as well. another related factor is the maturation of global value chains. increased fragmentation of production across international borders - - a natural outgrowth of the gains from specialization - meant more trade for any given value of final production, thus adding to the major expansion in gross trade flows in the 1990s and 2000s. as shown in the next slide, global value chain participation, as measured by the share of foreign value added in world exports, increased substantially during this period. it is quite plausible that the process of increased fragmentation of production across borders is subject to “ diminishing returns ” and has its natural limits. consistent with this notion, the trend toward greater product fragmentation has slowed in recent years. see, for example