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Are banks really special? A note on the theory of financial intermediaries

  • Bertocco Giancarlo

    ()

    (Department of Economics, University of Insubria, Italy)

Economic theory has not paid much attention to the topic of firm financing; this lack of interest was common to the two principal macroeconomic theories, the Keynesian theory and the Monetarist one. This work considers two important exceptions to the mainstream theory. The first coincides with Tobin’s theory. The second exception is constituted by the asymmetric information approach. These two approaches define in a different way the role of banks; Tobin elaborates a ‘new view’ which, in contrast with the ‘old view’, maintains that there are no reasons to attribute a special role to the banks. In contrast with Tobin’s theory, the supporters of the AI approach attribute a special role to the banks but, unlike the ‘old view’, they think that banks’ specificity is justified by the characteristics of their assets rather than by the characteristics of their liabilities. The objective of this paper is twofold: a) to analyse critically Tobin’s approach and the asymmetric information approach; b) to elaborate a theory of financial intermediaries which get over the limits of these two approaches.

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Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf04021.

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Length: 31 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:ins:quaeco:qf04021
Contact details of provider: Postal: Via Ravasi 2-21100 Varese
Web page: http://www.uninsubria.it/uninsubria/facolta/econo.html

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  1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  2. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  3. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October.
  4. Franklin Allen & Anthony M. Santomero, 1996. "The Theory of Financial Intermediation," Center for Financial Institutions Working Papers 96-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Scholtens, Bert & van Wensveen, Dick, 2000. "A critique on the theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1243-1251, August.
  6. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  7. Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," NBER Working Papers 8928, National Bureau of Economic Research, Inc.
  8. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
  9. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1984. "Informational Imperfections in the Capital Market and Macro-Economic Fluctuations," NBER Working Papers 1335, National Bureau of Economic Research, Inc.
  10. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  11. James Tobin, 1982. "Money and Finance in the Macro-Economic Process," Cowles Foundation Discussion Papers 613R, Cowles Foundation for Research in Economics, Yale University.
  12. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247, March.
  13. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, vol. 92(3), pages 460-501, June.
  14. Bertocco Giancarlo, 2002. "The role of credit in a Keynesian monetary economy," Economics and Quantitative Methods qf0222, Department of Economics, University of Insubria.
  15. Bruce Greenwald & Joseph E. Stiglitz, 1993. "New and Old Keynesians," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 23-44, Winter.
  16. Giancarlo Bertocco, 2007. "The characteristics of a monetary economy: a Keynes--Schumpeter approach," Cambridge Journal of Economics, Oxford University Press, vol. 31(1), pages 101-122, January.
  17. James Tobin & William C. Brainard, 1962. "Financial Intermediaries and the Effectiveness of Monetary Controls," Cowles Foundation Discussion Papers 63R, Cowles Foundation for Research in Economics, Yale University.
  18. Goodhart, C A E, 1987. "Why Do Banks Need a Central Bank?," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 75-89, March.
  19. Bruce C. Greenwald & Joseph E. Stiglitz, 1987. "Keynesian, New Keynesian, and New Classical Economics," NBER Working Papers 2160, National Bureau of Economic Research, Inc.
  20. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  21. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier.
  22. Joseph E. Stiglitz & Andrew Weiss, 1988. "Banks as Social Accountants and Screening Devices for the Allocation of Credit," NBER Working Papers 2710, National Bureau of Economic Research, Inc.
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