Download Capital Markets and Financial Intermediation by Colin Mayer (editor), Xavier Vives (editor) PDF

By Colin Mayer (editor), Xavier Vives (editor)

Monetary intermediation is presently a subject matter of lively educational learn on either side of the Atlantic. ecu monetary integration increases significant coverage concerns in regards to the dangers of banking pageant and the best legislation of banks and different monetary intermediaries. the alternative of Anglo-American vis-à-vis Continental ecu types of monetary markets can be principal to jap Europe's transformation. This quantity includes theoretical papers on the vanguard of educational learn that make clear banking and protection markets and banking festival.

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Do they and the associated externalities justify government intervention? Transaction costs. The transaction cost theory of banking is subject to the objection that non-financial firms could themselves offer the financial securities desired by final investors such as demand deposits. As Hellwig (1991a) argues, at least sufficiently large non-financial firms should not be concerned by the risk of withdrawal. Transformation. Transformation does not quite distinguish the financial and non-financial sectors for the reason that financial intermediaries act on behalf of non-financial firms.

As Hellwig (1991a) argues, at least sufficiently large non-financial firms should not be concerned by the risk of withdrawal. Transformation. Transformation does not quite distinguish the financial and non-financial sectors for the reason that financial intermediaries act on behalf of non-financial firms. Again, a non-financial firm could finance long-term investments by borrowing short from final investors instead of using a financial intermediary. Delegated monitoring. Diamond's view of financial intermediaries as monitors of borrowers is well taken.

Ratings per se are not a satisfactory solution however: a poor rating (following a poor combination of v and u) forces the bank to raise interest rates in order to retain its depositors. This impoverishes the bank and makes its claim-holders even more prone to let the managers gamble for resurrection than in the absence of ratings. Furthermore, spontaneous recapitalization is not desired by shareholders because it amounts to a gift to debt-holders. Private deposit insurance Private insurance resembles the use of ratings.

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