Capital Markets and Financial Intermediation by Colin Mayer (editor), Xavier Vives (editor)

By Colin Mayer (editor), Xavier Vives (editor)

Monetary intermediation is presently an issue of lively educational examine on each side of the Atlantic. ecu monetary integration increases significant coverage concerns concerning the dangers of banking festival and the fitting legislation of banks and different monetary intermediaries. the alternative of Anglo-American vis-à-vis Continental eu varieties of monetary markets is usually primary to japanese Europe's transformation. This quantity includes theoretical papers on the leading edge of educational study that make clear banking and protection markets and banking pageant.

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Let us see what would happen under a benevolent government that internalizes not only the taxpayers', but also the bank's and equity holders' interests. The agency would remain passive if and only if zJE + Ao + B>0. Note that whenever J D is positive, so is AE a fortiori, and therefore the benevolent agency would not interfere when the debt-holder of section 3 would not. But the agency would also remain passive for some values of the signals for which debt-holders would interfere. We thus conclude that the agency's internalization of bank or equity-holder welfare induces excessive passivity from the point of view of ex ante optimality.

17 Note that claim-holders are equally, and not more, passive if v is a first-period profit immediately distributed as a dividend to shareholders. 5 billion of shaky loans at face value, and received 80 per cent of the equity. 19 Collusion is a relevant issue for debt-holders and management of non-financial firms too. It is more acute, however, if there exists one large debt-holder facing many small ones. Efficient governance structure 35 20 This does not explain why small depositors do not invest in equity rather than debt.

This concern played an important role for instance in the 1984 Continental Illinois debacle where some large debt-holders would have been jeopardized by a failure. Competition for limited resources. Banks compete for their inputs as well as on their product markets. They bid for a limited volume of money and credit controlled by the central bank. This is sometimes presumed to lead to 'cannibalism', failures and financial shocks (Kaufman, 1991), because 16 Mathias Dewatripont and Jean Tirole banks in trouble try to 'get back on their feet' by attracting more funds, thereby making life more difficult for their competitors.

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