the evolving landscape of banking the structure of the financial services industry is in flux liberalization deregulation and advances in information technology have changed the financial landscape dramatically interbank competition has heated up and banks face increasing competition from nonbanking financial institutions and the financial markets the predictability of the industry with low levels of financial innovation little innovation in distribution channels and well defined and rigid institutional structures is gone product innovations new distribution channels and emerging new competitors are in abundance moreover the subprime crisis that has hit the financial sector in 2007 2008 appears to have a major impact on the structure of the industry this article emphasizes the importance of understanding the economics of banking for assessing the changes in the industry in particular we point at relationship banking as a prime source of the banks comparative advantage the proliferation of transaction oriented banking trading and financial market activities does however seriously challenge relationship banking in order to focus on these issues in a rigorous way we will evaluate the key insights from the relationship banking literature including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market underwriting securitization etc activities we also address the issue of the optimal conglomeration of bank activities including the empirical evidence on scope and scale economies we analyze the strategic positioning of banks in the currently highly uncertain competitive arena and link this to the theory of the firm and particularly firm boundaries and learning

dynamic banking a reconsideration financially intermediated and stock market consumption investment allocations with and without governmental interventions are compared in a welfare sense in overlapping generation economies with and without shocks to agents intertemporal preferences we first show that in economies with preference shocks governmental interventions subject to the same information requirements as those imposed on financial intermediaries lead to stock market allocations that are not inferior to those attained under financial intermediation second we argue that the necessary interventions are qualitatively no different from those required to implement stationary optimal allocations in olg models without shocks to agents intertemporal consumption preferences

better schools less crime i estimate the impact of attending a first choice middle or high school on adult crime using data from public school choice lotteries in charlotte mecklenburg school district cms seven years after random assignment lottery winners had been arrested for fewer serious crimes and had spent fewer days incarcerated the gain in school quality as measured by peer and teacher inputs was equivalent to moving from one of the lowest ranked schools to one at the district average the reduction in crime comes largely from years after enrollment in the preferred school is complete the impacts are concentrated among high risk youth who commit about 50 less crime across several different outcome measures and scalings of crime by severity i find suggestive evidence that school quality explains more of the impact in high school whereas peer effects are more important in middle school copyright 2011 oxford university press

can financial intermediation induce endogenous fluctuations abstract this paper studies the possibility of endogenous fluctuations caused by activities of financial intermediaries risk averse agents borrow from banks and invest in a risky two state capital technology the probability of success with the technology is assumed to be decreasing in the amount of capital invested in a complete information setting with intermediation the efficient loan contract achieves complete risk sharing but the amount invested in the risky project is smaller than the loan size this income effect is responsible for the endogenous generation of complex dynamics in the absence of intermediation the economy studied cannot exhibit any cyclical fluctuations

universal banks and corporate control evidence from the global syndicated loan market we investigate the effects of bank control over borrowerfirms whether by representation on boards of directors or by the holding of shares through bank asset management divisions using a large sample of syndicated loans we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm bank firm governance links are associated with higher loan spreads during the 2003 2006 credit boom but lower spreads during the 2007 2008 financial crisis additionally these links mitigate credit rationing effects during the crisis the results are robust to several methods to correct for the endogeneity of the bank firm governance link our evidence consistent with intertemporal smoothing of loan rates suggests that there are costs and benefits from banks involvement in firm governance jel g21 g32

the many faces of information disclosure in this article we ask what kind of information and how much of it should firms voluntarily disclose three types of disclosures are considered one is information that complements the information available only to informed investors to be processed complementary information the second is information that is orthogonal to that which any investor can acquire and thus complements the information available to all investors preprocessed complementary information and the third is information that substitutes for the information of the informed investors in that it reveals to all what was previously known only by the informed substitute information our main results are as follows first in equilibrium all types of firms voluntarily disclose all three types of information second in contrast to the existing literature complementary information disclosure by firms strengthens investors private incentives to acquire information substitute information disclosure weakens private information acquisition incentives third while complementary information disclosure has an ambiguous effect on financial innovation incentives substitute information disclosure weakens those incentives

competition and the provision of banking services to smes in the u k this paper examines the report produced by the competition commission on the provision of sme banking services in the u k the report is assessed in terms of underlying assumptions used to describe and assess how banks operate and perform the competition commission suggested remedies are drawn from a specific economic model assumed to be representative of the u k banking industry it is concluded the remedies proposed by the competition commission are misplaced and may impose a substantial future cost on both banks and smes receiving banking services it is proposed that the ramifications of this case are substantial for the present system of allocating bank funding to smes in both the u k and international economies where similar antitrust or competition guidelines are employed

the emergence and persistence of the anglo saxon and german financial systems we use a moral hazard model to compare monitored nontraded bank loans and traded nonmonitored bonds as sources of external funds for industry we contrast the theoretical conditions that favor each system with the historical conditions prevailing when these financial systems evolved during the british and german industrial revolutions to study persistence we consider an entry model where financiers take the industrial structure as given when they lend and firms take the financial system as given when they borrow we show multiple equilibria can exist compare equilibria in welfare terms and discuss their robustness to coordination between lenders and borrowers copyright 2004 oxford university press

on the benefits of concurrent lending and underwriting this paper examines whether there are efficiencies that benefit issuers and underwriters when a financial intermediary concurrently lends to an issuer while also underwriting its public securities offering we find issuers particularly noninvestmentgrade issuers for whom informational economies of scope are likely to be large benefit through lower underwriter fees and discounted loan yield spreads underwriters both commercial banks as well as investment banks engage in concurrent lending and provide price discounts albeit in different ways we find concurrent lending helps underwriters build relationships increasing the probability of receiving current and future business for many years the 1933 glass steagall act prevented commercial banks from underwriting corporate bonds and equities due to the relaxation and recent repeal of the act many commercial banks have acquired investment banks or developed investment banking capabilities internally to create universal banks that can offer an array of financial services the entry of commercial banks into underwriting markets has increased the potential for financial institutions to offer both lending and underwriting services in particular it has become increasingly common for financial intermediaries to provide loans to a firm while also underwriting the firm s public securities in fact concurrent lending and underwriting has increased substantially over time in 1994 only 1 of seasoned equity issuers received a loan from their underwriter at around the time of issuance but by 2001 over 20 of all deals were concurrent the movement toward concurrent lending and underwriting raises a host of interesting questions first why are deals concurrent

bank liquidity and stability in an overlapping generations model in an infinitely repeated version of the diamond and dybvig 1983 model intergenerational transfers enable a bank to achieve interest rate smoothing and to provide depositors with liquidity insurance without diamond and dybvig s assumption of no side trades the bank is subject to runs that may result from either excessive withdrawals or the lack of new deposits the latter cause which cannot occur in diamond and dybvig s one generation model implies that suspension of convertibility may not prevent bank runs government intervention may be necessary to maintain bank stability article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

subjective performance and the value of blind evaluation we investigate the incentive and project screening effects of anonymity in a setting of subjective performance evaluation if the review process is blind then the applicant s payoff relevant type is hidden from the reviewer if the process is nonblind or informed then the reviewer observes the applicant s type directly in either case the evaluator receives a noisy signal on the quality of the agent s project and decides whether to accept or reject it we find that if the signal is not verifiable then informed evaluation results in an excessively steep equilibrium acceptance policy the standard applied to low ability applicants is too stringent and the standard applied to high ability applicants is too lenient blind review in which all applicants face the same standard often provides better incentives but it discards valuable information for screening projects we discover that blind review is more likely to be preferred by the evaluator when 1 the applicant pool is skewed toward high ability types 2 the stakes from acceptance are relatively high for applicants 3 both types of errors are relatively less costly or 4 there is little competition among reviewers we also discover that under blind review the evaluator may benefit from a more diverse applicant pool

is the glass steagall act justified a study of the u s experience with universal banking before the glass steagall act of 1933 removed commercial banks from the securities underwriting business we evaluate the argument for the separation of commercial and investment banking that conflicts of interest induce commercial banks to fool the public into investing in securities which turn out to be of low quality a comparison of the performance of securities underwritten by commercial and investment banks prior to the act shows no evidence of this instead the public appears to have rationally accounted for the possibility of conflicts of interest and this appears to have constrained the banks to underwrite high quality securities jel g21 g24 n22

the dynamic interrelation between external finance and bank credit abstractthis article studies the interrelation among the volumes of bonds and stocks issued by non financial firms and levels of industrial loans outstanding in the united states these aggregates are co integrated and characterized by asymmetric volatility their co movements are driven by financial indicators such as the yield spread size of loan market and market volatility bond and stock issuance are positively correlated and even more so during the expansionary phase of the cycle loans outstanding and bond issuance are negatively correlated and their substitutability increases in periods of economic downturn highlighting the importance of bond markets to mitigate credit crunches

funded pensions and intergenerational and international risk sharing in general equilibrium we explore intergenerational and international risk sharing in a general equilibrium multiple country model with two tier pensions systems the exact design of the pension system is key for the way in which risks are shared over generations the laissez faire market solution fails to provide an optimal allocation because the young cannot share in the financial risks however the existence of wage indexed bonds combined with a pension system with a fully funded second tier that pays defined wage indexed benefits can reproduce the first best if wage indexed bonds are not available mimicking the first best is not possible except under special circumstances we also explore whether national pension funds want to deviate from the first best by increasing domestic equity holdings with wage indexed bonds this incentive is absent while there is indeed such an incentive when wage indexed bonds do not exist

evaluating microfoundations for aggregate price rigidities evidence from matched firm level data on product prices and unit labor cost a number of competing business cycle models have recently emerged all of which can explain why nominal shocks have real effects 1 although sharing a large number of common features a key difference between these models lies in the assumptions of how firms set prices and process information yet there exists very little direct micro evidence on the credibility of these assumptions this paper uses detailed data on product prices and unit labor cost merged at the firm level to evaluate competing sets of assumptions regarding firms price setting behavior thereby we provide firsthand evidence on the empirical relevance of the microfoundations of different dynamic stochastic general equilibrium dsge models

worker betas five facts about systematic earnings risk abstract the magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro labor and financial economics using administrative data we document how the aggregate risk exposure of individual earnings to gdp and stock returns varies across gender age the worker s earnings level and industry aggregate risk exposure is u shaped with respect to the earnings level in the middle of the earnings distribution aggregate risk exposure is higher for males younger workers and construction and durable manufacturing at the top of the earnings distribution aggregate risk exposure is higher for older workers and finance

trade credit and bank relationships evidence from pre world war i belgium we investigate the determinants of trade credit granted by suppliers in a historical environment which was characterized by high information asymmetries and strong banks focusing on the role of bank firm relationships our results which are based on a unique sample of 535 firm year observations for 125 listed belgian firms in four dominant industries in the period 1905 to 1909 are generally consistent with the financing role of trade credit they suggest that trade credit was a tool for channelling funds from firms with close bank ties to other firms which is consistent with findings for contemporary developing countries

banks equity stakes and lending evidence from a tax reform abstract we study how a bank s equity stake in a borrowing firm affects lending to that firm similar to prior papers we find a positive association between a bank s equity stake in a borrowing firm and lending to that firm while such a positive cross sectional correlation may be due to equity stakes benefiting lending it may also be driven by endogeneity to distinguish the two explanations we study a german tax reform that permitted banks to sell their equity stakes tax free after the reform many banks sold their equity stakes but did not reduce lending to the firms this observation is robust to several alternative model specifications control groups and time windows our findings suggest that banks equity stakes may be less important for lending than previously thought

alternative quota and ver allocation schemes a welfare comparison the authors employ a three country equilibrium framework to compare the welfare effects of alternative methods of allocating import quotas or voluntary export restraints among sources of supply they compare a scheme of allocating the quota or the voluntary expor t restraint in proportion to the preexisting free trade market shares with a tariff equivalent quota or voluntary export restraint allocat ion a complete welfare ranking of alternative allocation schemes for eac h of the three countries is obtained copyright 1992 by the london school of economics and political science

intergenerational risk sharing abstract in this paper we examine government debt and tax transfer policies that can be improve the allocation of risk between generations markets cannot allocate risk efficiently between two generations whenever the two generations are not both alive prior to the occurence of a stochastic event this implies that government policies transferring risk between generations have the potential to create first order welfare improvements our model provides a non keynesian justification for the debt finance of wars and recessions as well as an added rationale for social security type tax transfer schemes which aid unlucky generations e g the depression generation at the expense of luckier generations

do banks affect the level and composition of industrial volatility in theory better access to bank credit can reduce or increase output volatility depending on whether firms are more financially constrained during contractions or expansions this paper finds that the volatility of industrial output is lower in countries with more bank credit most of the reduction in volatility is idiosyncratic which follows from the ability of banks to pool and diversify shocks systematic volatility is reduced less strongly volatility dampening is achieved via countercyclical borrowing at the firm level short term borrowing is less or more negatively correlated with sales and inventories in countries with high levels of bank credit

understanding america s hesitant steps toward financial capitalism politics the depression and the separation of commercial and investment banking few would disagree that the glass steagall act of 1933 is thecontinental divide in american financial and banking history bydisallowing banks from getting involved in the investment bankingindustry this act imposed an institutional change that shaped howfinancial institutions conduct their business even today in itsdecline conventional wisdom has it that the act was enacted tocorrect the deficient financial system that existed during theperiod in this paper we investigate whether this assertion can beempirically verified by analyzing the senate vote on a predecessorof this act which included the clause separating commercialbanking from investment banking activities using multinomiallogits we examine what may have motivated senators to vote for itspassage the econometric evidence indicates that the senate votewas significantly influenced by important interest groups including national banks as well as manufacturing sectorinterests despite the large populist outcry for financial marketreforms at the onset of the depression

informational frictions and the credit crunch in this paper i estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007 to 2009 financial crisis because lenders rely on private information when deciding which relationship to end borrowers looking for a new lender are adversely selected i show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships quantitatively these informational frictions appear to be too small to explain the credit crunch in the u s syndicated corporate loan market

export quota allocations export earnings and market diversification countries facing voluntary export restraints vers often adopt a two tier allocation system for export licenses to the restricted market 1 a basic allocation related to export shares to the restricted market and 2 an open allocation based on export shares to the nonrestricted market such a two tier allocation system increases exports to the nonrestricted market beyond the levels which would exist under a single quota allocation system and has an efficiency cost as it results in some sales being made at less than marginal cost the history of ver negotiations provides a rationale for such a policy and suggests that the recent increase in antidumping cases may be partly associated with the adoption of two tier quota allocation systems nontariff barriers ntbs present a growing threat to a liberal world trading system and slow the relocation of mature industries from developed to developing countries among ntbs voluntary export restraints vers are proliferating and constitute a major element of the new protectionism besides measuring the incidence of ntbs research has concentrated on three aspects of vers the welfare cost to the imposing country their attraction for both exporters and importers and their inefficacy analysis of the first issue has shown that because the exporting country operates the ver there is a rent transfer from the importing country to the exporting country which is often larger than the distortionary costs associated with an equivalent tariff second research indicates that vers have endured because exporting countries receive the rent transfer whereas for importing countries vers can be imposed quickly and lack transparency and therefore attract fewer objections than outright subsidies to the industries seeking protection see for example bhagwati 1986

investment banks as corporate monitors in the early twentieth century united states we study the effect of financial relationships on firms investment decisions and access to external finance in the early twentieth century securities underwriters commonly held directorships with american corporations section 10 of the clayton antitrust act prohibited bankers from serving on the boards of railroads for which they underwrote securities we find that following the implementation of section 10 railroads with strong preexisting relationships with underwriters saw declines in their investment rates valuations and leverage and increases in their costs of external funds reassuringly we do not observe similar effects among industrials and utilities which were not subject to section 10 our results are consistent with underwriters on corporate boards acting as delegated monitors and highlight the potential for regulations intended to address conflicts of interest to disrupt valuable information flows

financial systems in europe the usa and asia financial structure is an important determinant of the efficiency and stability of financial systems and the channels through which monetary policy is transmitted we document the substantial differences in the financial systems of the euro area the uk the usa japan and non japan asia the traditional classification of bank based and market based systems is shown to be too simplistic we focus on two particular aspects of financial structure financial institutions and the housing and mortgage markets it is shown that institutional investors differ in important ways across the regions considered one recent change is that central banks particularly those in asia have become significant institutional investors housing and mortgage markets differ even more we are still a long way from understanding which kind of financial structure is best

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

financial system architecture 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 the 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 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

capital markets financial intermediaries and liquidity supply abstract we study a dynamic economy endowed with a sequence of overlapping generations of consumers and production processes and where productive assets are illiquid and consumption preferences are subject to uninsurable demand for liquidity we characterize the steady states that can be achieved with alternative financial systems we show that infinitely lived financial intermediaries offering a liability with age dependent restrictions may implement a social optimum with full insurance if instead they offer anonymous unrestricted contracts then only second best consumption allocations with partial insurance obtain we also examine the consumption allocations available when agents can trade shares in competitive stock markets while allowing for trade across generations may or may not improve upon generational autarky we show that this competitive equilibrium is not a social optimum and is dominated by a system of infinitely lived unrestricted intermediaries

relationship banking liquidity and investment in the german industrialization close bank relationships are thought to ameliorate firms liquidity constraints a phenomenon frequently measured by liquidity sensitivity of investment using german firms during the formative years of universal banking 1903 1913 this paper shows that even controlling for selection bias investment is more sensitive to internal liquidity for bank networked firms than unattached firms the firm exhibiting the greatest liquidity sensitivity however faced no apparent liquidity constraint the findings yield two implications they support recent research rejecting a linear relationship between liquidity sensitivity and financing constraints and they suggest that relationship banking provides no consistent lessening of firms liquidity sensitivity

what matters in the finance growth nexus of advanced economies evidence from oecd countries over the last decades a large strand of finance and growth literature has provided ample evidence on the importance of financial deepening for economic development yet recently the focus of pub

did j p morgan s men add liquidity corporate investment cash flow and financial structure at the turn of the twentieth century this article presents evidence suggesting that the relationship that existed between the partnership of j p morgan and its client firms partially resolved the latter s external financing problems by diminishing the principal agent and asymmetric information problems i estimate and compare investment regression equations for a sample of morgan affiliated companies and a control group of nonaffiliated companies the econometric results seem to indicate that companies not affiliated to the house of morgan were liquidity constrained

political intergenerational risk sharing abstract in a stochastic two period olg model featuring an aggregate shock to the economy ex ante optimality requires intergenerational risk sharing we compare the level of intergenerational risk sharing chosen by a benevolent government and by an office seeking politician in our political system the transfer of resources across generations is determined as a markov equilibrium of a probabilistic voting game low realized returns on the risky asset induce politicians to compensate the old through a payg system this political system typically generates an intergenerational risk sharing scheme that is i larger ii more persistent and iii less responsive to the realization of the shock than the social optimum this is because the current politician anticipates her transfers to the elderly to be compensated by future politicians through offsetting transfers and hence overspends

financial deregulation in france in the past few years an extraordinary amount of financial deregulation has taken place in france only as recently as 1983 the country was under tight capital controls faced a wide range of administered and cartelised interest rates possessed a relative sparsity of financial instruments and had its banks strapped in a credit corset or credit ceiling arrangement known as the encadrement du credit today there is only a vestige of the capital controls the only administered interest rates that remain concern bank deposits a host of new financial instruments has emerged and there is no encadrement banking is no longer the secure business that it used to be quite significantly the first bank failure since world war ii occurred in 1987 a few other have followed since commission bancaire 1989 a couple of french bankers put the matter nicely in a recent assessment henceforth the french banking apparatus will need to show that it can manage risks instead of regulations levy lang and henrot 1987 this paper will provide a quick guide to the deregulation why it happened and what took place in addition some of the basic questions posed by the deregulation will be raised for lack of space a fundamental knowledge of general french conditions prior to the deregulation will be taken for granted the reform took sail under the socialists in 1984 85 after a period of socialist advance into opposite waters toward bank nationalisation and further regulation although the liberahsation was presented as necessary to assure the survival of paris as a financial center in view of deregulation abroad the move looks much more like a deliberate choice we see this best by comparing france and germany the german domestic financial environment is a fairly regulated one but as a country with free capital movements and the leader of monetary policy in the european monetary system ems germany has seen little cause to deregulate its financial markets what pressure to liberalise it has felt has come from the european commission following the white paper on european financial integration in june 1985 on the other hand france as a country which required capital controls to steer an independent course in macroeconomic policy in the ems turned toward financial deregulation before the white paper appeared when economic historians look back at this important juncture in european

nontariff trade controls and leader follower relations in international competition a simple duopoly model is constructed in which leader follower relations arise as part of a subgame perfect equilibrium in a game of endogenous timing the author shows that in the absence of policy intervention cost asymmetries between firms can help sustain collusive hierarchical organization of markets on the basis of this model he then analyzes the effects of voluntary export restraints and import quotas in the presence of foreign and international duopolies the author s analysis reveals that in contrast to the existing literature these nontariff trade controls can break the stability of leader follower relations and thereby raise an importing country s welfare copyright 1996 by the london school of economics and political science

a note on proportionally distributed quotas traditional theory has usually condemned trade restriction as an irrational or misguided interference with efficient resource allocation the two notable exceptions have been the optimum tariff and the infant industry argument for protection more recently however trade theorists have begun to investigate the possibility that tariffs are used to achieve certain noneconomic objectives that is ones reflecting considerations not captured by individual private consumption their work has evaluated the relative efficiency of tariffs production subsidies and consumption taxes as instruments for implementing such objectives as a given increase in domestic production or restraint of imports below the free trade level 2 this note seeks to extend the analysis by comparing a tariff or equivalent quota with a commonly used protective arrangement which we term a proportionally distributed quota as alternative means of pursuing various objectives of trade restriction we do not intend to de emphasize the cost even when minimized of achieving certain objectives through protection rather to the extent that these objectives are the end result of a process of political bargaining they may be difficult to alter merely through demonstration of their welfare cost to the economy as a whole of course calculation and promulgation of this cost makes it harder for special interest groups to obtain economic privileges at the expense of the majority however we should not overlook the possibility that certain noneconomic objectives are truly public goods which provide sufficient collective utility to the majority to justify their cost in terms of foregone consumption in either case it is desirable to provide the least cost method of achieving the objective for purposes of this paper noneconomic can best be understood as outside the model it is well known that any protective goal can be achieved through some combination of a consumption tax and a production subsidy however tariffs and quotas are employed much more frequently than direct subsidies probably for reasons of political feasibility in this paper we use a familiar model to show that a proportionally distributed quota implies a smaller tax and larger subsidy than a tariff or conventional quota and thus provides a more economically efficient but equally practical means of achieving some objectives as long as markets remain competitive import quotas distributed in most of the usual ways are analytically equivalent to tariffs since they will acquire a premium value in the market reflecting the domestic scarcity of the importable good 4 the only difference is in the distribution of the proceeds in fact the import licenses can be auctioned to the public in which case assuming again that markets remain competitive and in particular that the supply of licenses is not monopolized the distribution of the proceeds is also equivalent since the auction should yield the same revenue as would be produced by a tariff we designate this type of restriction below as a tariff quota in contrast the proportionally distributed quota is a system in which import rights are assigned to producers or consumers in proportion to their individual production or consumption of the restricted good we show below that which group receives the licenses is irrelevant to the resulting equilibrium for a given objective of protection again markets remnaining competitive this is analogous to the fact that the economic incidence

financial system design and liquidity provision by banks and markets in a dynamic economy this paper contributes to the literature on financial system design by comparing markets and banks in a dynamic economy investors trade off their liquidity needs against the high returns on illiquid investments both the banking system and the market can provide partial liquidity insurance to investors we consider full market participation as well as limited market participation we demonstrate that the full participation market with intergenerational trading can provide more liquidity than one without insurance is provided through wealth transfer across generations instead of cross subsidization across contemporaneous types as is the case in the finite economy given a full participation market that allows trading across generations only banks with initial capital can provide additional liquidity in a limited participation market with uncertainty about trading types an intergenerational bank with or without initial capital provides additional insurance to investors the need for trade is eliminated finally if there is no uncertainty about trading types then an intergenerational bank with initial capital eliminates the need for trading and improves welfare for all an intergenerational bank without initial capital improves welfare for people who do not trade

international and domestic collateral constraints in a model of emerging market crises abstract we build a model of emerging markets crises which features two types of collateral constraints firms in a domestic economy have limited borrowing capacity from international investors they also have limited borrowing capacity with respect to each other we study how the presence and changes in these collateral constraints affect financial and real variables a binding international constraint in the aggregate leads to a sharp rise in interest rates and fire sales of domestic assets while limited domestic collateral can lead to wasted international collateral these two collateral constraints can interact in important ways the first is disintermediation a fire sale of domestic assets causes banks to fail in their function of reallocating resources across the economy leading to wasted international collateral the second is a dynamic effect we show that firms in an economy with limited domestic collateral and a binding international collateral constraint will not adequately precaution against adverse shocks increasing the severity of these shocks

on the profitability and cost of relationship lending abstract we provide evidence on the costs and profitability of relationship lending by banks we derive bank specific measures of loan rate smoothing for small business borrowers in response to exogenous shocks to their credit risk and to interest rates and then estimate cost and profit functions to examine how smoothing affects bank costs and profits our results suggests that in general loan rate smoothing in response to a credit risk shock is not part of an optimal long term contract between a bank and its borrower while loan rate smoothing in response to an interest rate shock is

financial markets intermediaries and intertemporal smoothing in an overlapping generations economy with incomplete financial markets but no intermediaries there is underinvestment in safe assets in an economy with intermediaries and no financial markets accumulating reserves of safe assets allows returns to be smoothed nondiversifiable risk to be eliminated and an ex ante pareto improvement compared to the allocation in the market equilibrium to be achieved in a mixed financial system however competition from financial markets constrains intermediaries so that they perform no better than markets alone

understanding the clayton act of 1914 an analysis of the interest group hypothesis the trusts issue culminated in the passage of the clayton act in1914 which conventional wisdom holds was a response to theperceived ineffectiveness of the sherman antitrust act of 1890 using ordered and multinomial logit analysis we were able todetect economic interest variables that explain the senators votes the empirical findings strongly support the wealth transferhypothesis and the regression results clearly show that senatorsresponded to interest groups while we also found some support forthe ideological perspective it is clear that there was much moreto the vote than the conventional story would suggest

how much equity does the government hold a central point in the recent debate about social security in the united states has been the extent to which the federal government should take significant positions in the equity market but as this paper shows the government already has a much more significant if implicit position in the u s equity market through its claim to future tax revenues using estimates of the sensitivity of federal tax revenues to stock market returns i calculate the implicit equity position of the federal government defined as the equity position that would be as sensitive to the stock market as the present value of federal revenues although standard errors are large point estimates indicate that the implicit federal equity position exceeds the size of the stock market itself a result that is consistent with the fact that revenues from all sources not just taxes on corporate source income are responsive to stock market returns this abstract was borrowed from another version of this item

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

on the costs of a bank centered financial system evidence from the changing main bank relations in japan we examine the effects of bank firm relationships on firm performance in japan when access to capital markets is limited close bank firm ties increase the availability of capital to borrowing firms but do not lead to higher profitability or growth the cost of capital of firms with close bank ties is higher than that of their peers this indicates that most of the benefits from these relationships are appropriated by the banks finally the slow growth rates of bank clients suggest that banks discourage firms from investing in risky profitable projects however liberalization of financial markets reduces the banks market power the close relationship between manufacturing firms and financial institutions in japan has recently been at the center of the debate on the appropriate financial system for the reforming economies of eastern europe as opposed to the anglo saxon separation of finance and industry long term ties between main banks and their client firms involving bank loans bank equity holding and some bank appointed personnel which are common in japan and germany have often been described as a growth oriented financial system that could serve the needs of developing and reformed economiies better than anonymous capital markets modeled after the arnerican and british financial systems the claim that close ties between investmentoriented banks and industrial firms could help overcome the difficulties of relative backwardness dates back to gerschenkron 1962 who investigates european development rosovsky 1961 applies gerschenkron s framework to the analysis of japanese growth more recently aoki patrick and sheard 1994 hoshi kashyap and loveman 1994 and teranishi 1993 among others portray the close ties between finance and industry in japan as an important factor in the international competitiveness of modern japanese

why regulate insider trading evidence from the first great merger wave 1897 1903 we use event time methodology to study legal insider trading associated with mergers circa 1900 for mergers with prospective disclosures similar to today s we find substantial value gains at announcement implying participation by outside shareholders despite the absence of insider constraints furthermore preannouncement stock price runups relative to total value gain are no more than those observed for modern mergers insider regulation apparently has produced little benefit for outsiders with the inside information pricing function and related gains shifting to external information specialists other results suggest market penalties for nondisclosure i e insider trading is less successful in a restricted information environment

does bank affiliation mitigate liquidity constraints evidence from germany s universal banks in the pre world war i period this paper compares two similar samples of mining and steel corporations in pre world war i germany one sample consists of corporations that were affiliated to one or more of the german universal banks and the second sample consists of companies that had to rely on other sources of finance statistical analysis conducted in the framework of a linear fixed effects model indicates that the non affiliated companies were liquidity constrained the paper also sets out the corporate control structure as laid down in the trade law reform of 1884 and traces the origins of the current german dual board system as well as the origins of several other aspects of the institutions that tied the german banking system to industrial concerns

import quotas and vers a comparative analysis in a three country framework abstract because a ver is inherently discriminatory the traditional two country analysis comparing it to a quota is inadequate this paper adopts a general equilibrium three country approach to compare tariffs quotas and vers a quota equivalent ver is defined alternatively in terms of quantity or price the welfare of the importing country is higher under a quota and that of the non restricted exporter is higher under a ver the welfare comparison for the ver restricted country is ambiguous a result which is at variance with conventional wisdom

banks and markets in a monetary economy abstract 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 inefficient the paper analyzes how interest rates and asset prices depend on the structure of the financial sector and characterizes the central bank policy that supports efficient allocations the analysis relies on the difference between liquidity and real shocks and relates the notion of liquidity used in this paper to the one adopted in other studies

national culture and financial systems countries differ in the way their financial activities are organized in anglo saxon countries such as the us and the uk financial systems are dominated by stock markets whereas in continental europe and japan banks play a predominant role why do countries differ in the configuration of their financial systems we argue that national culture plays a significant role we find that countries characterized by higher uncertainty avoidance are more likely to have a bank based system

is the extended family altruistically linked direct tests using micro data this paper uses panel study of income dynamics data on parents and their adult children to test the standard altruism model this model predicts that within the extended family the distribution of consumption is independent of the distribution of resources the authors findings strongly reject this prediction copyright 1992 by american economic association