European Parliament Library

Financial Globalization and the Governance of Domestic Financial Intermediaries, Thierry Tressel, Thierry Verdier

We model an economy in which domestic banks and firms face incentive constraints, as in Holmstrom and Tirole (1997). Firms borrow from banks and uninformed investors, and can collude with banks to reduce the intensity of monitoring. We study the general equilibrium effects of capital flows (portfolio investments and loans, FDI) on the governance of domestic banks. We find that liberalization of capital flows may deteriorate the governance of the domestic financial system by increasing firms' incentives to collude with banks, with negative effects on productivity. We also show that systemic bailout guarantees increase the risks of collusion
Table Of Contents
Contents; I. Introduction; II. Literature Review; III. Structure of the Model; A. Production Technology; B. Financial Intermediaries; C. Uninformed Investors; D. Collusion; IV. Firms' Financial Contracts; A. Incentive and Participation Constraints; B. The Borrower's Maximization Program; C. Project Size; D. When Does Partial Collusion Occur?; V. General Equilibrium; A. Occupational Choices and Equilibrium on the Markets for Domestic Capital; B. Existence of a Mixed Equilibrium; Figures; 1. Equilibrium Rate of Return on Informed Capital
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (59 p.)
Specific Material Designation
Form Of Item

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