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A TRANSACTIONS COST APPROACH TO THE THEORY OF FINANCIAL INTERMEDIATION

A TRANSACTIONS COST APPROACH TO THE THEORY OF FINANCIAL INTERMEDIATION IN OUR OPINION, a proper framework has yet to be developed for the analysis of financial intermediation. The traditional macroeconomic analysis views financial intermediaries as passive conduits through which monetary policy is effected.' Even when a more micro view is taken, though, the analyses often are restricted to studying the effect on the rate of change and allocation of money and credit of required and desired reserve ratios, ceiling rates imposed on loans and deposits, etc? Recent (and some past) writers criticize this approach.' These authors point out that since financial intermediaries are firms, they should be analyzed with the micro economic tools that have been employed to analyze other industries. Yet, in this implementation, considerable divergence in approach can be found. For example, while Pesek [1970] and Towey [1974] describe one financial intermediary, banks, as producing money by employing loans as inputs, Hyman [1972] and Melitz and Pardue [1973] describe them as producing credit with deposits as inputs. Furthermore, although most authors suggest that the intermediaries maximize something, it is sometimes profits, sometimes growth, and sometimes (rather anthropomorphicly) utility (e.g., Klein [1971]). We believe that these approaches are not the most productive way to analyze financial intermediaries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

A TRANSACTIONS COST APPROACH TO THE THEORY OF FINANCIAL INTERMEDIATION

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References (33)

Publisher
Wiley
Copyright
1976 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1976.tb01882.x
Publisher site
See Article on Publisher Site

Abstract

IN OUR OPINION, a proper framework has yet to be developed for the analysis of financial intermediation. The traditional macroeconomic analysis views financial intermediaries as passive conduits through which monetary policy is effected.' Even when a more micro view is taken, though, the analyses often are restricted to studying the effect on the rate of change and allocation of money and credit of required and desired reserve ratios, ceiling rates imposed on loans and deposits, etc? Recent (and some past) writers criticize this approach.' These authors point out that since financial intermediaries are firms, they should be analyzed with the micro economic tools that have been employed to analyze other industries. Yet, in this implementation, considerable divergence in approach can be found. For example, while Pesek [1970] and Towey [1974] describe one financial intermediary, banks, as producing money by employing loans as inputs, Hyman [1972] and Melitz and Pardue [1973] describe them as producing credit with deposits as inputs. Furthermore, although most authors suggest that the intermediaries maximize something, it is sometimes profits, sometimes growth, and sometimes (rather anthropomorphicly) utility (e.g., Klein [1971]). We believe that these approaches are not the most productive way to analyze financial intermediaries.

Journal

The Journal of Finance – Wiley

Published: May 1, 1976

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