Financial Institutions in Transition: Banks, Markets, and the Allocation of Risks in an Economy
AbstractThis paper discusses the role of banks and markets in the allocation of risks in an economy. Starting from a discussion of risk allocations in the Arrow-Debreu model, it criticizes the view that banks and markets are substitutes. Instead it is argued that markets are made by intermediaries and intermediaries in turn rely on - interbank - markets for risk management. The analysis raises the question why traditional contractual arrangements in banking leave banks subject to risks associated with macro shocks, which are in principle contractable in an incentive-compatible way. Several explanations for this phenomenon are discussed.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 154 (1998)
Issue (Month): 1 (March)
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Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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- Gerhard Illing, 2007. "Financial Stability and Monetary Policy – A Framework," CESifo Working Paper Series 1971, CESifo Group Munich.
- Krahnen, Jan Pieter, 2005.
"Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes,"
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2005/05, Center for Financial Studies (CFS).
- Jan Pieter Krahnen, 2005. "Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(4), pages 499-519, November.
- Jan Pieter Krahnen, 2005. "Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes," Working Paper Series: Finance and Accounting 152, Department of Finance, Goethe University Frankfurt am Main.
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