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Financial Globalization and the Governance of Domestic Financial Intermediaries

Financial Globalization and the Governance of Domestic Financial Intermediaries by Thierry Tressel
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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.
International Monetary Fund; March 2007
57 pages; ISBN 9781452776361
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Title: Financial Globalization and the Governance of Domestic Financial Intermediaries
Author: Thierry Tressel; Thierry Verdier
 
ISBNs
1451910649
9781451866117
9781451910643
9781452776361