Intermediation and vertical integration
This paper views financial intermediaries as vertically integrated firms. The authors explore how competitive conditions in retail and wholesale funding markets affect the incentive for (upstream) originators and (downstream) fund managers to integrate. The underlying tradeoff in our model is driven by the choice between the production of an illiquid but high yielding loan and a liquid but relatively low yielding bond. The authors find that greater homogeneity among savers has two effects, both of which tend to increase the incentive to form integrated intermediaries. Greater homogeneity both increases competition between independent fund managers and reduces the likelihood of inefficient underinvestment by integrated intermediaries. The authors also find that the incentive to integrate is greater when fund managers have more power in the market for firms' securities.
|Date of creation:||1997|
|Date of revision:||01 Feb 1998|
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- Marie-Odile Yanelle, 1997. "Banking Competition and Market Efficiency," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 215-239.
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"Credible commitments, contract enforcement problems and banks: Intermediation as credibility assurance,"
Journal of Banking & Finance,
Elsevier, vol. 15(3), pages 605-632, June.
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- Udell, Gregory F., 1989. "Loan quality, commercial loan review and loan officer contracting," Journal of Banking & Finance, Elsevier, vol. 13(3), pages 367-382, July.
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- Winton Andrew, 1995. "Delegated Monitoring and Bank Structure in a Finite Economy," Journal of Financial Intermediation, Elsevier, vol. 4(2), pages 158-187, April. Full references (including those not matched with items on IDEAS)
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