Comparing Financial Systems

Overview

Financial systems are crucial to the allocation of resources in a modern economy.

They channel household savings to the corporate sector and allocate investment funds among firms;they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies. Yet the form of these financial systems varies widely. In the UnitedStates and ...

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Overview

Financial systems are crucial to the allocation of resources in a modern economy.

They channel household savings to the corporate sector and allocate investment funds among firms;they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies. Yet the form of these financial systems varies widely. In the UnitedStates and the United Kingdom competitive markets dominate the financial landscape, whereas inFrance, Germany, and Japan banks have traditionally played the most important role.Why do different countries have such different financial systems? Is one system better than all the others? Do different systems merely represent alternative ways of satisfying similar needs? Is the current trend toward market-based systems desirable? Franklin Allen and Douglas Gale argue that the view that market-based systems are best is simplistic. A more nuanced approach is necessary. For example,financial markets may be bad for risk sharing; competition in banking may be inefficient; financial crises can be good as well as bad; and separation of ownership and control can be optimal. Financial institutions are not simply veils, disguising the allocation mechanism without affecting it, but are crucial to overcoming market imperfections. An optimal financial system relies on both financial markets and financial intermediaries.

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What People Are Saying

From the Publisher
"This excellent book is a must-read for anyone interested in anin-depth understanding of how financial systems have evolved indifferent countries and how they affect resource allocation andeconomic development." Anjan Thakor, Edward J. Frey Professor of Banking and Finance, University of Michigan Business School

"This excellent book is a must-read for anyone interested in an in-depthunderstanding of how financial systems have evolved in different countriesand how they affect resource allocation and economic development." Anjan Thakor , Edward. J. Frey Professor of Banking and Finance,University of Michigan Business School

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Product Details

  • ISBN-13: 9780262511254
  • Publisher: MIT Press
  • Publication date: 3/1/2001
  • Edition description: Reprint
  • Pages: 519
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.87 (d)

Meet the Author

Franklin Allen is the Nippon Life Professor of Finance and Economics at the Wharton School,University of Pennsylvania.

Douglas Gale is Professor of Economics at New York University.

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Table of Contents

Preface
I Setting the Stage
1 Comparing Financial Systems
2 The Historical Development of Financial Systems
3 Institutions and Markets
4 Corporate Governance
5 The Limitations of Markets: The Classical View
II Competition Versus Insurance
6 Intertemporal Smoothing
7 Information and Resource Allocation
8 Competition in Banking
9 Financial Crises
10 Renegotiation and Relationships
III The Role of the Firm
11 Autonomous, SelfFinancing Firms
12 Objectives of Firms
IV Markets and Intermediaries
13 Diversity of Opinion and Resource Allocation
14 Costly Markets
15 Relationships and Risk Sharing
16 Afterword
IndeX
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