Title: Financial System Architecture: The Role of Systemic Risk, Added Value and Liquidity
Abstract:Risky investment projects make the coordination among small, uninformed investors hard to achieve, and generate inefficient low levels of investment. Several authors have pointed out the benefits to a...Risky investment projects make the coordination among small, uninformed investors hard to achieve, and generate inefficient low levels of investment. Several authors have pointed out the benefits to an economy from multiple avenues of financial intermediation. This paper explains endogenously different financial architectures and classifies them according to the capacity of financial intermediaries to reallocate risks and create added value. In some of these architectures, financial intermediaries improve coordination among agents by providing insurance over the primitive payoffs available in decentralized financial markets. This enhances efficiency and stabilizes the economy against fundamental shocks and confidence shifts. In other financial architectures financial intermediation plays a minor role or is unfeasibleRead More
Publication Year: 2007
Publication Date: 2007-02-02
Language: en
Type: preprint
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot