The increasingly competitive environment poses challenges to bankers. This paper emphasizes 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...

In this paper we identify the tradeoffs between objectivity and proximity as fundamental to the corporate governance debate. We stress the value of objectivity that comes with distance (e.g., the market-oriented U.S. system), and the value of better information that comes with proximity (e.g.,...

This paper provides a rationale for the use of discretion in bank loan contracts. Discretion allows banks which produce information on borrowers to optimally adapt contract terms to 'soft' or non-verifiable information in the course of lending. This facilitates investment efficiency and also...

In this paper, we provide a novel rationale for credit ratings. The rationale that we propose is that credit ratings can serve as a coordinating mechanism in situations where multiple equilibria can obtain. We show that credit ratings provide a quot;focal pointquot; for firms and their...

This paper provides a rationale for the use of discretion in bank loan contracts. Discretion allows banks which produce information on borrowers to optimally adapt contract terms to 'soft' or non-verifiable information in the course of lending. This facilitates investment efficiency and also...

This paper analyzes the optimal conglomeration of bank activities. We show that the effectiveness of market discipline for stand-alone activities (divisions) is of crucial importance for the potential benefits of conglomeration. We find that effective market discipline reduces the potential...

This paper analyzes the optimal conglomeration of bank activities. We show that the effectiveness of market discipline for stand-alone activities (divisions) is of crucial importance for the potential benefits of conglomeration. We find that effective market discipline reduces the potential...

This paper analyzes the optimal conglomeration of bank activities. We show that incentive problems in banking sometimes dictate integration of activities, but with perfect market discipline always push us away from integration/conglomeration. Ineffective market discipline could make...