The Past and Future of Commercial Banking Viewed through an Incomplete Contract Lens

Commercial banks emerged at a time when contracts were very incomplete and property rights insecure. They typically offered demand deposits, made loans on demand, and were regulated. Each of these aspects of the institutional structure were essential in helping the bank provide the twin functions of liquidity and safety. The author argue that recent theories of banking, which he collectively refer to as 'Incomplete Contract' theories of banking, explain well the origins of banking. The authors also claim that they can explain recent changes in banking; as the informational, legal, and property rights environment has improved, there appear to be fewer synergies between various aspects of the traditional institutional structure of the bank. In developed countries, it is now time to think whether there is anything special about the institutional form of the bank, or whether all that is special is that it is regulated.

[1]  M. Flannery.  Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence , 1998 .

[2]  J. Tirole,et al.  Financial Intermediation, Loanable Funds, and The Real Sector , 1997 .

[3]  J. Stein,et al.  What Do a Million Banks Have to Say About the Transmission of Monetary Policy? , 1997 .

[4]  R. Rajan,et al.  The Tyranny of the Inefficient: An Enquiry into the Adverse Consequences of Power Struggles , 1997 .

[5]  Jean Tirole,et al.  Private and Public Supply of Liquidity , 1996, Journal of Political Economy.

[6]  Florencio López‐de‐Silanes,et al.  Law and Finance , 1996, Journal of Political Economy.

[7]  J. Houston,et al.  Evolution Or Extinction: Where Are Banks Headed? , 1996 .

[8]  G. Benston,et al.  The Appropriate Role of Bank Regulation , 1996 .

[9]  T. Hoenig.  Rethinking financial regulation , 1996 .

[10]  G. Benston,et al.  Is the banking and payments system fragile , 1995 .

[11]  Allen N. Berger,et al.  The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been , 1995 .

[12]  R. Rajan,et al.  Organization Structure and Credibility: Evidence from Commercial Bank Securities Activities Before the Glass-Steagall Act , 1995 .

[13]  S. Myers,et al.  The Paradox of Liquidity , 1995 .

[14]  R. C. Merton,et al.  Financial Innovation and the Management and Regulation of Financial Institutions , 1995 .

[15]  C. Goodhart.  The Central Bank and the Financial System , 1995 .

[16]  M. Petersen,et al.  The Effect of Credit Market Competition on Lending Relationships , 1994 .

[17]  M. Gertler,et al.  Are Banks Dead? Or are the Reports Greatly Exaggerated? , 1994 .

[18]  G. Kaufman.  Bank contagion: A review of the theory and evidence , 1994 .

[19]  M. Petersen,et al.  The Benefits of Lending Relationships: Evidence from Small Business Data , 1994 .

[20]  A. Thakor,et al.  Contemporary Banking Theory , 1993 .

[21]  Lawrence M. Benveniste,et al.  The Failure of Drexel Burnham Lambert: Evidence on the Implications for Commercial Banks , 1993 .

[22]  Andrew Winton.  Limitation of Liability and the Ownership Structure of the Firm , 1993 .

[23]  Myron B. Slovin,et al.  The Value of Bank Durability: Borrowers as Bank Stakeholders , 1993 .

[24]  G. Kaufman.  Lender of last resort: A contemporary perspective , 1991 .

[25]  Douglas W. Diamond.  Debt Maturity Structure and Liquidity Risk , 1991 .

[26]  Gary B. Gorton,et al.  Banks and Loan Sales: Marketing Non-Marketable Assets , 1990 .

[27]  Christopher M. James,et al.  Borrowing relationships, intermediation, and the cost of issuing public securities , 1990 .

[28]  D. Scharfstein,et al.  The Role of Banks in Reducing the Costs of Financial Distress in Japan , 1990 .

[29]  C. Goodhart,et al.  The Evolution of Central Banks. , 1990 .

[30]  M. Goodfriend.  Money, Credit, Banking, and Payments System Policy , 1989 .

[31]  Colin Mayer,et al.  New issues in corporate finance , 1988 .

[32]  Christopher M. James,et al.  Some evidence on the uniqueness of bank loans , 1987 .

[33]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[34]  Edward C. Prescott,et al.  Financial intermediary-coalitions , 1986 .

[35]  C. Kindleberger.  A Financial History of Western Europe , 1985 .

[36]  Douglas W. Diamond.  Financial Intermediation and Delegated Monitoring , 1984 .

[37]  Anjan V. Thakor,et al.  Information Reliability and a Theory of Financial Intermediation , 1984 .

[38]  Philip H. Dybvig,et al.  Bank Runs, Deposit Insurance, and Liquidity , 1983, Journal of Political Economy.

[39]  Tim S. Campbell,et al.  Information Production, Market Signalling, and the Theory of Financial Intermediation , 1980 .

[40]  Hayne E. Leland,et al.  INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION , 1977 .

[41]  R. D. Roover,et al.  The Rise and Decline of the Medici Bank, 1397-1494 , 1965 .

[42]  H. C. Simons,et al.  Economic policy for a free society , 1948 .

[43]  A. P. Usher,et al.  The Early History of Deposit Banking in Mediterranean Europe. , 1944 .

[44]  M. Flannery.  Debt maturity and the deadweight cost of leverage: optimally financing banking firms , 1994 .

[45]  M. Gertler,et al.  Are Banks Dead? Or Are the Reports Greatly Exaggerated: in The Declining Role of Banking? , 1994 .

[46]  Arnold W.A. Boot,et al.  Reputation and discretion in financial contracting , 1993 .

[47]  Gary B. Gorton,et al.  Financial Innovation and the Provision of Liquidity Services , 1992 .

[48]  L. Nakamura.  Loan workouts and commercial bank information: why banks are special , 1989 .

[49]  M. C. Keeley,et al.  Deposit insurance, risk, and market power in banking , 1988 .

[50]  Philip H. Dybvig,et al.  Banking Theory, Deposit Insurance, and Bank Regulation , 1986 .

[51]  F. Lane,et al.  Money and banking in medieval and Renaissance Venice , 1985 .

[52]  V. Anthony.  Banks and markets , 1972 .