how should financial institutions and markets be structured.pdfVIP

How Should Financial Institutions and Markets Be Structured? Analysis and Options for Financial System Design by George G. Kaufman Randall S. Kroszner School of Business Administration Graduate School of Business Loyola University University of Chicago Chicago, IL 60611 Chicago, IL 60637 Prepared for ASafe and Sound Financial Systems: What Works for Latin America?@ Inter-American Development Bank, Washington, DC, September 27-28, 1996. How Should Financial Institutions and Markets Be Structured? Analysis and Options for Financial System Design George G. Kaufman and Randall S. Kroszner The structure of a nations financial markets and institutions is widely considered to be of greater policy importance than structures in other sectors of the economy for a number of reasons. Financial institutions and, in particular banks, encourage, collect, and transfer the savings necessary to finance the nations economic growth. In addition to marshaling savings, banks and other financial institutions are an integral part of the monitoring of private enterprises and, to varying degrees, the system of corporate governance that affect the productivity of resources in the economy. Numerous studies have provided evidence that the degree of development and efficiency of the banking system is a key contributor to overall economic growth (e.g., King and Levine 1993, Levine 1996, and Jayaratne and Strahan 1996). These institutions also play a fundamental role in the transmission of