Debt

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Abstract
This section offers an essential background for the analysis of the rest of the book. It outlines the nature of the debt contract; aspects of the economics of debt; theories of credit rationing and financial intermediation; key differences between financial systems interpreted in the light of these concepts; and (in the appendix) stylized facts of the overall development of financial systems. To motivate this chapter, it suffices to note that the book suggests that the influence of credit rationing, the nature and locus of intermediation, and the type of financial system, all have a key influence on the genesis of financial fragility and systemic risk; and that these features in turn relate directly to the underlying nature of the debt contract itself. Note that there are three main types of debt: that owed by end users to investors (direct finance), by end users to intermediaries (generally loans), and by intermediaries to investors (generally deposits). Focus is mainly on the first two here and in Chs. 2–4; the third comes to the fore in the second part of the book, relating to financial instability.

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