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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- Winton Andrew, 1995. "Delegated Monitoring and Bank Structure in a Finite Economy," Journal of Financial Intermediation, Elsevier, vol. 4(2), pages 158-187, April.
- Thakor, Anjan V., 1996. "The design of financial systems: An overview," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 917-948, June.
- 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.
- Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
- Boot, Arnoud W. A. & Thakor, Anjan V. & Udell, Gregory F., 1991.
"Credible commitments, contract enforcement problems and banks: Intermediation as credibility assurance,"
Journal of Banking & Finance,
Elsevier, vol. 15(3), pages 605-632, June.
- Boot, A.W.A. & Thakor, A.V. & Udell, G.F., 1987. "Credible commitments, contract enforcement problems and banks : Intermediation as credibility assurance," Research Memorandum 6168c386-7508-4320-afbb-1, Tilburg University, School of Economics and Management.
- Marie-Odile Yanelle, 1997. "Banking Competition and Market Efficiency," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 215-239.
- Thakor, Anjan V., 2000. "Relationship Banking," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 3-5, January.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
- Ernst-Ludwig von Thadden, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 557-575.
- David Besanko & Anjan V. Thakor, 2004. "Relationship Banking, Deposit Insurance and Bank Portfolio Choice," Finance 0411046, EconWPA.
- Tim S. Campbell, 1987. "The valuation cost approach to the theory of financial intermediation," Proceedings 169, Federal Reserve Bank of Chicago.
- Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
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