Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires … that information about the backing assets - loans - not be revealed, so that bank money does not fluctuate in value …-insensitive assets. For the economy as a whole, firms endogenously separate into bank finance and capital market/stock market finance …

firms are highly-indebted. The analysis is based on a model in which firms rely on bank credit to finance their working …

. Banks maximize profits, and there are no conflicts of interest between bank shareholders and creditors. The theory explains …We propose a theory of financial intermediaries operating in markets influenced by investor sentiment. In our model …

will be overstated, and the bias can be large (about 25 percent). Second, we argue that, according to finance theory, the …

probability of obtaining a bank loan from 40 to 58 percent. Our results demonstrate that even in the U.S., with its well …