We examine how banks and financial markets interact with one another to provide liquidity to investors. The critical assumption is that financial markets are characterized by limited enforcement of contracts, and in the event of default only a fraction of borrowers' assets can be seized. Limited...

Modern financial sectors consist of banks, asset markets and a central bank. This paper builds a model where these institutions provide different financial services, and their interaction supports efficient allocations. When one institution is missing equilibria are, by construction,...