What Makes Banks Special? A Study of Banking, Finance, and Economic Development
Over the past decades, finance theory has contributed significantly to understanding banks and identifying what qualifies them to be special financial intermediaries. Historically, banks have had a comparative advantage in certain functions - such...
| Main Author: | |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/08/443623/makes-banks-special-study-banking-finance-economic-development http://hdl.handle.net/10986/19815 |
| Summary: | Over the past decades, finance theory
has contributed significantly to understanding banks and
identifying what qualifies them to be special financial
intermediaries. Historically, banks have had a comparative
advantage in certain functions - such as providing liquidity
and payment services and supplying credit and information -
which competition, technological change, and institutional
development have increasingly eroded. And the spread of
e-money could deal a blow to conventional banking,
generating entirely new ways of doing finance. After
integrating his examination of money, production, and
investment, the author argues that banks remain special in
that they lend claims on their own debt and the public
accepts the debt claims as money. His study shows the banks
and nonbank financial intermediaries perform complementary
functions essential to the economy. Risk reduction policies
in payment systems, banking asset allocation, and the
deposit market affect the economy's tradeoff between
risk and efficiency and the cost of generating resources to
finance production. As possibilities for global
communications expand, trust will matter more than ever, and
banks and other financial intermediaries will be in a good
position to bridge gaps in trust when it comes to creating
money and intermediating funds. |
|---|