Abstract:
In developed market economies, banks and other financial institutions perform a variety of vital tasks: they mobilise savings and allocate funds to the optimal uses, they pool investment risks, they exploit scale economies in the evaluation and monitoring of borrowers, and they match the preferences of lenders and borrowers for liquidity and for specific term structures of portfolios. Driven by self-interested owners whose own capital is at risk and by equally self-interested top managers who care for their reputation on the market for top executives, the banks exert financial discipline on their customers.
