Banking Scope, Financial Innovation, and the Evolution of the Financial System
AbstractThis paper explores the implications of financial system design for financial innovation. We begin with assumptions about the investment opportunities of firms, their observable attributes, and the roles of commericial banks, investment banks, and the financial market. We examine the borrower's choice between bank and financial market funding, the commercial bank's choice of monitoring capacity, and the investment bank's choice of whether to invest in financial innovation. Our main result is that financial innovation in a universal banking system is stochastically lower than innovation in a financial system in which commercial and investment banks are functionally separated. This result is accompanied by a host of policy implications regarding the effects of fragmentation and the evolution of financial systems.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1237.
Date of creation: Sep 1995
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- João Cabral dos Santos, 1996.
"Commercial banks in the securities business: a review,"
9610, Federal Reserve Bank of Cleveland.
- João Santos, 1998. "Commercial Banks in the Securities Business: A Review," Journal of Financial Services Research, Springer, vol. 14(1), pages 35-60, July.
- João A. C. Santos, 1998. "Commercial banks in the securities business: A review," BIS Working Papers 56, Bank for International Settlements.
- Thakor, Anjan V., 1996. "Financial conglomeration: Issues and questions," The North American Journal of Economics and Finance, Elsevier, vol. 7(2), pages 135-145.
- Thakor, Anjan V., 1996. "The design of financial systems: An overview," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 917-948, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.