Carlson School of Management
University of Minnesota
3-275 CarlS Mgmt
321 19th Avenue S
Minneapolis, MN 55455
NBER Working Papers and Publications
|May 2002||Financial Intermediation|
with Gary Gorton: w8928
The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth. Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment. In contrast, in capital markets investors contract directly with firms, creating marketable securities. The prices of these securities are observable, while financial intermediaries are opaque. Why do financial intermediaries exist? What are their roles? Are they inherently unstable? Must the government regulate them? Why is financial intermediation so pervasive? How is it changing? In this paper we survey the last fifteen years' of theoretical and empirical research on financial intermediation. We focu...
Published: Constantinides, George, Milton Harris, and Rene Stulz. The Handbook of the Economics of Finance: Corporate Finance. Elsevier Science, 2003.
|August 1995||Bank Capital Regulation in General Equilibrium|
with Gary Gorton: w5244
We study whether the socially optimal level of stability of the banking system can be implemented with regulatory capital requirements in a multi-period general equilibrium model of banking. We show that: (i) bank capital is costly because of the unique liquidity services provided by demand deposits, so a bank regulator may optimally choose to have a risky banking system; (ii) even if the regulator prefers more capital in the system, the regulator is constrained by the private cost of bank capital, which determines whether bank shareholders will agree to meet capital requirements rather than exit the industry.