It is commonly argued that poorly designed banking system safety nets are largely to blame for the frequency and severity of modern banking crises. For example, “underpriced” deposit insurance and/or low reserve requirements are often viewed as factors that encourage risk-taking by banks. In...

The role of debt and equity changes over time and with the level of development. What are these changes, and why should they systematically occur across different countries and time periods? This article characterizes financial innovation as a dynamic process that both influences and is...

We produce a theoretical framework that helps explain the co-evolution of the real and financial sectors of an economy in the growth process, as described by Gurley and Shaw. According to them, self-financed capital investment first gives way to debt finance and later to the emergence of equity...

Many claims have been made about the potential benefits, and the potential costs, of adopting a system of universal banking in the United States. We evaluate these claims using a model where there is a moral hazard problem between banks and “borrowers,” a moral hazard problem between banks...

Three economic environments are reviewed, and in each organizations play an essential role. For an adverse selection insurance economy, we find that when mutual insurance arrangements are permitted an equilibrium necessarily exists and is optimal. This example, and the two others, illustrate the...

An exploration of the cross-sectional relationship between inflation and an array of indicators of financial market conditions, using time-averaged data covering several decades and a large number of countries.