The Theory of Financial Intermediation:
THE THEORY OF FINANCIAL INTERMEDIATION: AN ESSAY ON WHAT IT DOES (NOT) EXPLAIN by Bert Scholtens and Dick van Wensveen
SUERF – The European Money and Finance Forum Vienna 2003
CIP
The Theory of Financial Intermediation: An Essay On What It Does (Not) Explain by Bert Scholtens, and Dick van Wensveen
Vienna: SUERF (SUERF Studies: 2003/1)
ISBN 3-902109-15-7
Keywords: Financial Intermediation, Corporate Finance, Assymetric Information, Economic Development, Risk Management, Value Creation, Risk Transformation.
JELclassificationnumbers: E50,G10,G20,L20,O16
© 2003 SUERF, Vienna
Copyright reserved. Subject to the exception provided for by law, no part of this publication may be reproduced and/or published in print, by photocopying, on microfilm or in any other way without the written consent of the copyright holder(s); the same applies to whole or partial adaptations. The publisher retains the sole right to collect from third parties fees payable in respect of copying and/or take legal or other action for this purpose.
THE THEORY OF FINANCIAL INTERMEDIATION AN ESSAY ON WHAT IT DOES (NOT) EXPLAIN+ by Bert Scholtens* Dick van Wensveen†
Abstract
This essay reflects upon the relationship between the current theory of financial intermediation and real-world practice. Our critical analysis of this theory leads to several building blocks of a new theory of financial intermediation.
Current financial intermediation theory builds on the notion that intermediaries serve to reduce transaction costs and informational asymmetries. As developments in information technology, deregulation, deepening of financial markets, etc. tend to reduce transaction costs and informational asymmetries, financial intermediation theory shall come to the conclusion that intermediation becomes useless. This contrasts with the practitioner’s view of financial intermediation as a value-creating economic process. It also conflicts with the continuing and increasing economic importance of
SUERF – The European Money and Finance Forum Vienna 2003
CIP
The Theory of Financial Intermediation: An Essay On What It Does (Not) Explain by Bert Scholtens, and Dick van Wensveen
Vienna: SUERF (SUERF Studies: 2003/1)
ISBN 3-902109-15-7
Keywords: Financial Intermediation, Corporate Finance, Assymetric Information, Economic Development, Risk Management, Value Creation, Risk Transformation.
JELclassificationnumbers: E50,G10,G20,L20,O16
© 2003 SUERF, Vienna
Copyright reserved. Subject to the exception provided for by law, no part of this publication may be reproduced and/or published in print, by photocopying, on microfilm or in any other way without the written consent of the copyright holder(s); the same applies to whole or partial adaptations. The publisher retains the sole right to collect from third parties fees payable in respect of copying and/or take legal or other action for this purpose.
THE THEORY OF FINANCIAL INTERMEDIATION AN ESSAY ON WHAT IT DOES (NOT) EXPLAIN+ by Bert Scholtens* Dick van Wensveen†
Abstract
This essay reflects upon the relationship between the current theory of financial intermediation and real-world practice. Our critical analysis of this theory leads to several building blocks of a new theory of financial intermediation.
Current financial intermediation theory builds on the notion that intermediaries serve to reduce transaction costs and informational asymmetries. As developments in information technology, deregulation, deepening of financial markets, etc. tend to reduce transaction costs and informational asymmetries, financial intermediation theory shall come to the conclusion that intermediation becomes useless. This contrasts with the practitioner’s view of financial intermediation as a value-creating economic process. It also conflicts with the continuing and increasing economic importance of
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