Working Paper: NBER ID: w29183
Authors: Robert Clark; Jean-François Houde; Jakub Kastl
Abstract: This chapter discusses recent developments in the literature involving applications of industrial organization methods to finance. We structure our discussion around a simple model of a financial intermediary that concentrates its attention either on (i) the retail market and hence engages in a traditional maturity transformation business by accepting funds that can be used to invest in risky projects (loans), or (ii) the investment business, financing its operations on the “wholesale” market and making markets or investing in higher return riskier projects. Our discussion is centered around the analysis of market structure and competition in each of these markets, focusing in turn on (i) primary and secondary markets for government and corporate debt, (ii) interbank loans, (iii) markets for retail funding, and (iv) credit markets, including mortgages.
Keywords: financial markets; imperfect competition; information frictions; market power; wholesale markets; retail funding; retail credit; regulation
JEL Codes: G21; L11; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market structure (D49) | efficiency of fund transfers (H87) |
| market power in retail and wholesale markets (L81) | efficiency of fund transfers (H87) |
| market power in retail and wholesale markets (L81) | increased markups in the financial industry (G19) |
| technological changes (O33) | dynamics of financial intermediation (G21) |
| regulatory changes (G18) | dynamics of financial intermediation (G21) |
| asymmetric information (D82) | efficiency of fund transfers (H87) |
| externalities (D62) | efficiency of fund transfers (H87) |