Banking Scope and Financial Innovation
- 1 October 1997
- journal article
- research article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 10 (4) , 1099-1131
- https://doi.org/10.1093/rfs/10.4.1099
Abstract
We explore the implications of financial system design for financial innovation. We begin with assumptions about the investment opportunities of firms, their observable attributes, and the roles of commercial banks, investment banks, and the financial market. We examine the borrower’s choice between bank and financial market funding, the commercial bank’s choice of monitoring capacity, and the investment bank’s choice of whether to invest in financial innovation. Our main result is that financial innovation in a universal banking system is stochastically lower than innovation in a financial system in which commercial and investment banks are functionally separated.Keywords
This publication has 28 references indexed in Scilit:
- The market for information and the origin of financial intermediationPublished by Elsevier ,2004
- Optimal Design and Governance of Asset-Backed SecuritiesJournal of Financial Intermediation, 1997
- Proprietary Information, Financial Intermediation, and Research IncentivesJournal of Financial Intermediation, 1995
- The Incentive to Sell Financial Market InformationJournal of Financial Intermediation, 1995
- Information Disclosure Costs and the Choice of Financing SourceJournal of Financial Intermediation, 1995
- The long-term default performance of bank underwritten security issuesJournal of Banking & Finance, 1994
- The Failure of Drexel Burnham Lambert: Evidence on the Implications for Commercial BanksJournal of Financial Intermediation, 1993
- Real Bills Revisited: Market Value Accounting and Loan MaturityJournal of Financial Intermediation, 1993
- Contemporary Banking TheoryJournal of Financial Intermediation, 1993
- Quantity Precommitment and Bertrand Competition Yield Cournot OutcomesThe Bell Journal of Economics, 1983