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The Provision of Financial Services – Trends, Prospects and Implications

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  • Warren Tease

    (Reserve Bank of Australia)

  • Jenny Wilkinson

    (Reserve Bank of Australia)

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    Abstract

    The paper considers recent trends in the provision of finance and the factors that are likely to influence its future course. It emphasises how the interaction between the allocation of household wealth and the financing needs of firms shape the structure and evolution of financial systems. The paper focuses on the experiences of banks, and argues that as the 1990s proceed they will face increased competition on both sides of their balance sheets. However, several factors are likely to provide banks some competitive advantage. The most important is that a large pool of borrowers cannot raise funds other than through banks. On the asset side of their balance sheets, the intermediation of funds to small and medium-sized businesses is thus a core function which differentiates banks from other financial institutions and the securities markets generally. But banks also have advantages on the liabilities side of their balance sheets, as they offer depositors a safe and highly liquid repository for their funds. The paper argues that the extent to which banks remain the institutional core of the financial system will depend on their ability to perform their traditional lending role. It concludes by speculating about the implications for the stability of the financial system of the structural changes which have occurred.

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    File URL: http://www.rba.gov.au/publications/rdp/1993/pdf/rdp9315.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9315.

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    Date of creation: Dec 1993
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    Handle: RePEc:rba:rbardp:rdp9315

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    1. Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(04), pages 459-471, December.
    2. Karen Mills & Steve Morling & Warren Tease, 1993. "Balance Sheet Restructuring and Investment," RBA Research Discussion Papers rdp9308, Reserve Bank of Australia.
    3. James, Christopher & Wier, Peggy, 1990. "Borrowing relationships, intermediation, and the cost of issuing public securities," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 149-171.
    4. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
    5. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
    6. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, December.
    7. Zvi Bodie, 1989. "Pension Funds and Financial Innovation," NBER Working Papers 3101, National Bureau of Economic Research, Inc.
    8. Ross, Stephen A, 1989. " Institutional Markets, Financial Marketing, and Financial Innovation," Journal of Finance, American Finance Association, vol. 44(3), pages 541-56, July.
    9. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    10. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May.
    11. John H. Boyd & Mark Gertler, 1993. "U.S. Commercial Banking: Trends, Cycles, and Policy," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 319-377 National Bureau of Economic Research, Inc.
    12. Allen B. Frankel & John D. Montgomery, 1991. "Financial Structure: An International Persepective," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 257-310.
    13. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
    14. Frederic S. Mishkin, 1990. "Financial Innovation and Current Trends in U.S. Financial Markets," NBER Working Papers 3323, National Bureau of Economic Research, Inc.
    15. Philip Lowe & Geoffrey Shuetrim, 1992. "The Evolution of Corporate Financial Structure: 1973–1990," RBA Research Discussion Papers rdp9216, Reserve Bank of Australia.
    16. Paul Francis O'Brien & Frank Browne, 1992. "A "Credit Crunch"?: The Recent Slowdown in Bank Lending and Its Implications for Monetary Policy," OECD Economics Department Working Papers 107, OECD Publishing.
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