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Why do financial systems differ? History matters

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  • Cyril Monnet
  • Erwan Quintin

Abstract

We describe a dynamic model of financial intermediation in which fundamental characteristics of the economy imply a unique equilibrium path of bank and financial market lending. Yet we also show that economies whose fundamental characteristics have converged may continue to have very different financial structures. Because setting up financial markets is costly in our model, economies that emphasize financial market lending are more likely to continue doing so in the future, all else equal.

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Paper provided by Federal Reserve Bank of Dallas in its series Center for Latin America Working Papers with number 0304.

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Date of creation: 2004
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Handle: RePEc:fip:feddcl:0304

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Keywords: Financial markets;

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References

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  1. O. Emre Ergungor, 2003. "Financial system structure and economic development: structure matters," Working Paper 0305, Federal Reserve Bank of Cleveland.
  2. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  3. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
  4. Mathias Dewatripont & Eric Maskin, 2004. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9605, ULB -- Universite Libre de Bruxelles.
  5. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  6. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  7. Ergungor, O. Emre, 2004. "Market- vs. bank-based financial systems: Do rights and regulations really matter?," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 2869-2887, December.
  8. Sandeep Baliga, 2004. "The Emergence and Persistence of the Anglo-Saxon and German Financial Systems," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 129-163.
  9. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
  10. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  11. Richard Tilly, 1998. "Universal Banking in Historical Perspective," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(1), pages 7-, March.
  12. Tilly, Richard, 1982. "Mergers, External Growth, and Finance in the Development of Large-Scale Enterprise in Germany, 1880–1913," The Journal of Economic History, Cambridge University Press, vol. 42(03), pages 629-658, September.
  13. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 73-124, March.
  14. Patrick Bolton & Xavier Freixas, 2000. "Equity, Bonds, and Bank Debt: Capital Structure and Financial Market Equilibrium under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 324-351, April.
  15. Michie, Ranald C., 1986. "The London and New York Stock Exchanges, 1850–1914," The Journal of Economic History, Cambridge University Press, vol. 46(01), pages 171-187, March.
  16. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  17. Sylla, Richard, 1969. "Federal Policy, Banking Market Structure, and Capital Mobilization in the United States, 1863–1913," The Journal of Economic History, Cambridge University Press, vol. 29(04), pages 657-686, December.
  18. Fohlin, Caroline, 2002. "Regulation, taxation and the development of the German universal banking system, 1884 1913," European Review of Economic History, Cambridge University Press, vol. 6(02), pages 221-254, August.
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Cited by:
  1. Hans J. Blommestein, 2006. "Visions about the Future of Banking," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  2. Alexis Derviz, 2007. "Cross-Border Risk Transmission by a Multinational Bank," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 1(1), pages 87-111, March.
  3. Thorsten Koeppl & Cyril Monnet & Erwan Quintin, 2008. "Efficient institutions," Working Papers 08-33, Federal Reserve Bank of Philadelphia.

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