Financial System Architecture
The main purpose of this paper is to take a step towards building a theory of financial system architecture. We begin with basic assumptions about the types of primitive agents and the nature of informational asymmetries in the economy, and then provide a theory that explains which agents coalesce to form banks and which agents trade in the capital market. Our theory incorporates a model of financial market equilibrium with sufficient richness to enable market prices to convey decision-relevant information to firms and makes it possible to extract broader implications regarding the configuration of financial systems. The borrower's choice between bank and financial market funding is examined in this framework, and it is shown that borrowers of higher observable qualities directly access the financial market. Moreover, a financial system in its infancy is likely to be bank dominated, and financial innovation causes a decline in the relative importance of banks in lending.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Aug 1995|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1197. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.