Raghuram G . Rajan Has Financial Development Made the World Riskier ? 313
نویسنده
چکیده
ing further to make this discussion more relevant to an industrial economy, the purpose of the bank is to warehouse risks that only it can manage, while financing with a capital structure that gives its management credibility. This means that if some risks become more vanilla and capable of being offloaded to the rest of the financial sector, the banking system will offload them and replace them with more complicated risks, which pay more and better utilize its distinct warehousing capabilities. After all, investment managers, who have a relatively focused and transparent investment strategy, have a lower cost of capital in financing liquid assets and plain-vanilla risks than banks, whose strategies and balance sheets are more opaque (see Myers and Rajan, 1998).6 Consider an example. A fixed rate bank loan to a large corporate client has a number of embedded risks, such as the risk that interest rates will rise, reducing the present value of future repayments and the risk that the client firm will default. There is no reason the bank should hold on to interest rate risk. Why not offload it to an insurance company or a pension fund that is looking for fixed income flows? Increasingly, default risk is also being transferred.7 However, the bank may, want to hold on to some of the default risk, both to signal the quality of the risk to potential buyers, and to signal it will continue monitoring the firm, coaxing it to reduce default risk. The lower the credit quality of the firm, the stronger the role of the bank in monitoring and controlling default risk, as also the greater the need 326 Raghuram G. Rajan
منابع مشابه
Trade Credit, Financial Intermediary Development and Industry Growth
Recent work suggests that financial development is important for economic growth, since financial markets more effectively allocate capital to firms with high value projects. For firms in poorly developed financial markets, implicit borrowing in the form of trade credit may provide an alternative source of funds.We show that industries with higher dependence on trade credit financing exhibit hi...
متن کاملThe Influence of the Financial Revolution on the Nature of Firms
Major technological, regulatory, and institutional changes have made finance more widely available in recent years. The ability of financial institutions to price a variety of exotic instruments, and to assess and spread risks, has increased. More data on potential borrowers is now available, and it is also more timely. Improvements in accounting disclosure have resulted in greater borrower tra...
متن کاملThe Transformation of the European Financial System
In the last two decades the European financial markets have become more market oriented. We analyze the economic and political forces that have triggered these changes as well as their likely welfare implications. We also try to assess whether this trend will continue. Based on our analysis, we conjecture that even if Europe might benefit from a continuation of the trend, in the near future pol...
متن کاملPatterns of International Capital Flows and Their Implications for Economic Development
Economic theory posits that capital should, on net, flow from richer to poorer countries. Specifically, in the benchmark neoclassical model, capital should flow from countries that have relatively high capital-to-labor ratios to countries that have relatively low ratios. In an influential paper, Lucas (1990) notes that flows of capital from the north to the south are nowhere near the levels pre...
متن کامل