The paper explains why an issuer may wish to raise external capital by selling multiple financial claims that partition its total asset cash flows, rather than a single claim. It is shown that in an asymmetric information environment, the issuer's expected revenue is enhanced by such cash flow...

The authors analyze repeated moral hazard with discounting in a competitive credit market with risk neutrality. Even without learning or risk aversion, long-term bank-borrower relationships are welfare enhancing. The main result is that the borrower obtains an infinite sequence of unsecured...

The authors review the economics of bank regulation as developed in the contemporary literature. They begin with an examination of the central aspects of modern banking theories in explaining the asset transformation function of intermediaries, optimal bank liability contracts, coordination...

The authors explain the use of legally unenforceable, discretionary financial contracts in circumstances where legally enforceable contracts are feasible. A discretionary contract allows a contracting party to choose whether or not to honor the contract. It is shown that such a contract...

The authors explain why an issuer may wish to raise external capital by selling multiple financial claims that partition its total asset cash flows, rather than a single claim. They show that, in an asymmetric information environment, the issuer's expected revenue is enhanced by such cash flow...

This article builds a theory of financial system architecture. We ask: what is a financial market, what is a bank, and what determines the economic role of each? Starting with basic assumptions about primitives--the types of agents and the nature of the informational asymmetries--we provide a...

We explore 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 commercial banks, investment banks, and the financial market. We examine the borrower's choice...

In this article we ask: what kind of information and how much of it should firms voluntarily disclose? Three types of disclosures are considered. One is information that complements the information available only to informed investors (to-be-processed complementary information). The second is...

Consumer deposit pricing has recently been the subject of close public scrutiny. Banks have been accused of monopolistically setting fees for some of their deposit services at levels greater than associated costs. This paper examines consumer deposit pricing in a world characterized by imperfect...