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http://hdl.handle.net/2451/27043
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| Title: | Financial Intermediaries and Markets |
| Authors: | Allen, Franklin
Gale, Douglas |
| Issue Date: | 19-Dec-2003 |
| Series/Report no.: | S-FI-03-16 |
| Abstract: | A complex financial system comprises both financial markets and
financial intermediaries. We distinguish financial intermediaries
according to whether they issue complete contingent contracts or
incomplete contracts. Intermediaries such as banks that issue incomplete
contracts, e.g., demand deposits, are subject to runs, but this does not
imply a market failure. A sophisticated financial system–a system
with complete markets for aggregate risk and limited market
participation–is incentive-efficient, if the intermediaries issue
complete contingent contracts, or else constrained-efficient, if they
issue incomplete contracts. We argue that there may be a role for
regulating liquidity provision in an economy in which markets for
aggregate risks are incomplete. |
| URI: | http://hdl.handle.net/2451/27043 |
| Appears in Collections: | Financial Institutions
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