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Banks and markets: substitutes, complements, or both?

  • Mitchell Berlin
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    In traditional banking arrangements, households hold their savings in the form of deposits at the bank, which makes loans to both firms and households and holds these loans to maturity. But in the United States, and to a lesser extent in other developed countries, markets have increasingly taken over the roles traditionally played by banks. The shift of financing activity from banks to financial markets, as well as their continued coexistence, raises a number of questions. In this article, Mitchell Berlin discusses some of these questions, such as: What factors determine the relative importance of banks and markets in a financial system in which the two types of finance coexist? Why do so many borrowers continue to use a mixture of bank loans and bonds? And perhaps most important: How does the mix of banks and market finance affect the real economy? That is, how much households save, how firms invest, and how fast the economy grows.

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    File URL: http://www.philadelphiafed.org/research-and-data/publications/business-review/2012/q2/brq212_banks-and-markets-substitutes-complements-or-both.pdf
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    Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.

    Volume (Year): (2012)
    Issue (Month): Q2 ()
    Pages: 1-10

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    Handle: RePEc:fip:fedpbr:y:2012:i:q2:p:1-10
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    1. Alon Brav & Wei Jiang & Frank Partnoy & Randall Thomas, 2008. "Hedge Fund Activism, Corporate Governance, and Firm Performance," Journal of Finance, American Finance Association, vol. 63(4), pages 1729-1775, 08.
    2. Degryse, Hans & Kim, Moshe & Ongena, Steven, 2009. "Microeconometrics of Banking Methods, Applications, and Results," OUP Catalogue, Oxford University Press, number 9780195340471, March.
    3. Fink, Jason & Fink, Kristin E. & Grullon, Gustavo & Weston, James P., 2010. "What Drove the Increase in Idiosyncratic Volatility during the Internet Boom?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(05), pages 1253-1278, October.
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