A complex financial system comprises both financial markets and financial intermediaries. We distinguish financial intermediaries according to whether they issue complete contingent contracts or incomplete contracts. Intermediaries such as banks that issue incomplete contracts, e.g., demand...

The corporate governance systems operating in different countries are distinct. In the U.S. and U.K., it is often argued that the threat of takeover ensures managers act in the shareholders' interests. In countries such as Germany, Japan, and France, it is suggested banks and other institutions...

A financial system is fragile if a small shock has a large effect. Sunspot equilibria, where the endogenous variables depend on extrinsic uncertainty, provide an extreme illustration. However, fundamental equilibria, where outcomes depend only on intrinsic uncertainty, can also be fragile. We...

Relationships between intermediaries and their customers have become increasingly important in recent years. This paper argues that the need for costly ex ante information acquisition and analysis is a major barrier to the participation of investors and firms in sophisticated markets. Long-term...

What is a Financial System?<p> <p>The purpose of a financial system is to channel funds from agents with surpluses to agents with deficits. In the traditional literature there have been two approaches to analyzing this process. The first is to consider how agents interact through financial markets....</p></p>

The eect of stock market interlinkages on asset price bubbles are considered. Bubbles can occur when there is an agency problem between banks and the people they lend money to because the banks cannot observe how the funds are invested. This causes a risk shifting problem and asset prices are...

As international financial systems become increasingly integrated, the need to reform each country's system has become clear. How to reform those systems is a hotly debated policy issue. Much of this debate has centered on universal banking and the relationship between banks and financial...

One of the most striking differences among developed countries is the wide variation in the form of their financial systems. Cross-country differences in financial systems and economic performance raise a host of interesting questions. What are the advantages of bank-based systems and what are...

The return of assets that are traded on financial markets are more volatile than the returns offered by intermediaries such as banks and insurance companies. This suggests that individual investors are exposed to more risk in countries which rely heavily on financial markets. In the absence of a...