Citation

Discussion Paper Details

Please find the details for DP1237 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Banking Scope, Financial Innovation, and the Evolution of the Financial System

Author(s): Arnoud W A Boot and Anjan Thakor

Publication Date: September 1995

Keyword(s): Banking Scope, Financial Innovation and Financial System Design

Programme Area(s): Financial Economics

Abstract: This paper explores the implications of financial system design for financial innovation. We begin with assumptions about the investment opportunities of firms, their observable attributes, and the roles of commericial banks, investment banks, and the financial market. We examine the borrower's choice between bank and financial market funding, the commercial bank's choice of monitoring capacity, and the investment bank's choice of whether to invest in financial innovation. Our main result is that financial innovation in a universal banking system is stochastically lower than innovation in a financial system in which commercial and investment banks are functionally separated. This result is accompanied by a host of policy implications regarding the effects of fragmentation and the evolution of financial systems.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1237

Bibliographic Reference

Boot, A and Thakor, A. 1995. 'Banking Scope, Financial Innovation, and the Evolution of the Financial System'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1237