Financial System Architecture
- 1 July 1997
- journal article
- research article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 10 (3) , 693-733
- https://doi.org/10.1093/rfs/10.3.693
Abstract
This article builds a theory of financial system architecture. We ask: what is a financial market, what is a bank, and what determines the economic role of each? Starting with basic assumptions about primitives—the types of agents and the nature of informational asymmetries—we provide a theory that explains which agents coalesce to form banks and which trade in the capital market. It is shown that borrowers of higher observable qualities access the financial market. Moreover, a financial system in its infancy will be bank-dominated, and increased financial market sophistication diminishes bank lending.Keywords
All Related Versions
This publication has 37 references indexed in Scilit:
- The market for information and the origin of financial intermediationPublished by Elsevier ,2004
- Proprietary Information, Financial Intermediation, and Research IncentivesJournal of Financial Intermediation, 1995
- Capital requirements, loan renegotiation and the borrower's choice of financing sourceJournal of Banking & Finance, 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
- Real Bills Revisited: Market Value Accounting and Loan MaturityJournal of Financial Intermediation, 1993
- Contemporary Banking TheoryJournal of Financial Intermediation, 1993
- Risk, managerial effort, and project choiceJournal of Financial Intermediation, 1992
- Debt covenants and renegotiationJournal of Financial Intermediation, 1992
- The delivery of market timing services: Newsletters versus market timing fundsJournal of Financial Intermediation, 1990