What distinguished financial institutions from other firms is the relatively small share of real assets on their balance sheets. Thus, the direct impact of financial institutions on the real economy is relatively minor. The indirect impact of financial markets and institutions on economic...

Traditional theories of intermediation are based on transaction costs and asymmetric information. They are designed to account for institutions which take deposits or issue insurance policies and channel funds to firms. However, in recent decades there have been significant changes. Although...

This paper investigates the demand by households for transaction services from the financial sector. Households buy several goods with any of several media of exchange. The households choose the medium of exchange to use for each type of good, how much of each type of medium to hold, and the...

The banking industry has experienced an unprecedented level of consolidation on a belief that gains can accrue through expense reduction, increased market power, reduced earnings volatility, and scale and scope economies. A review of the literature suggests that the value gains that are alleged...

This paper examines the impact of bank portfolio behavior when banks are subject to capital regulation. It employs comparative static analysis of bank portfolio risk when regulators increase the minimum level of required capital relative to assets. The results show, under plausible assumptions...

The authors describe the function of intermediation in the financial sector and the role of regulatory supervision in managing the inherent structural vulnerability of the process.<p> <p>Financial intermediaries provide both a risk taking and a maturity transformation function in mobilizing savings...</p></p>