Financial Intermediaries and the Saving-Investment Process

Gurley, John G.; Shaw, Edward S.

doi:10.2307/2976705

Cited by 39 publications

(20 citation statements)

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“…In particular, this function has apparently been unstable throughout the 1970s and into the 1980s. This was predicted by Gurley and Shaw (1955, 1956, 1960 in the 1950s. They argued that the growth of nonbank financial intermediaries (NBFIs) could seriously hamper monetary control if the liabilities of these NBFIs were such close substitutes for money that substitution occurs between bank and non-bank liabilities.…”

Section: Introductionmentioning

confidence: 72%

The Substitutability of Financial Assets in the U.K. And the Implications for Monetary Aggregation*

Drake¹

1992

The Manchester School

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Section: Introductionmentioning

confidence: 72%

The Substitutability of Financial Assets in the U.K. And the Implications for Monetary Aggregation*

Drake¹

1992

The Manchester School

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“…The origin of the "financial development" concept goes back to the early work of Gurley and Shaw (1955, 1956, 1960, 1967, who argued that financial development is a positive function of real wealth: As countries' income and wealth grows, their financial structures tend to become more sophisticated in terms of institutions and financial assets available. "During economic development, as their incomes per capita increases, countries usually experience more rapid growth in financial assets than in national wealth or national product," they wrote (Gurley and Shaw 1967, 257).…”

Section: Introductionmentioning

confidence: 99%

On Financial Development and Economic Growth in the Arab Republic of Egypt

Mohieldin¹,

Hussein²,

Rostom³

2019

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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“…This paper proposes the view that interbank markets are tiered, operating in a hierarchical fashion where lower-tier banks deal with each other primarily through money center banks. It may seem peculiar to focus on intermediation between banks; intermediation is traditionally regarded as the activity banks perform on behalf of non-banks, such as depositors and …rms (Gurley and Shaw (1956), Diamond (1984)). The notion that banks build yet another layer of intermediation between themselves goes largely unnoticed in the banking literature.…”

Section: Introductionmentioning

confidence: 99%

Interbank Tiering and Money Center Banks

Craig¹,

Peter²

2010

Working Paper (Federal Reserve Bank of Cleveland)

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Abstract:This paper provides evidence that interbank markets are tiered rather than flat, in the sense that most banks do not lend to each other directly but through money center banks acting as intermediaries. We capture the concept of tiering by developing a core-periphery model, and devise a procedure for fitting the model to real-world networks. Using Bundesbank data on bilateral interbank exposures among 1800 banks, we find strong evidence of tiering in the German banking system. Moreover, bankspecific features, such as balance sheet size, predict how banks position themselves in the interbank market. This link provides a promising avenue for understanding the formation of financial networks. Keywords:Interbank markets, intermediation, networks, tiering, core and periphery, market structureNon-technical summary This paper defines interbank tiering and provides a network characterization founded on intermediation. The interbank market is tiered when some banks intermediate between banks that do not extend credit among themselves. We capture this market structure by formulating a core-periphery model and devise a procedure for fitting the model to real-world networks. This can be thought of as running a regression, but instead of estimating a parameter that achieves the best linear fit, one determines the optimal set of core banks that achieves the best structural match between the observed network and a tiered structure of the same dimension. We show that our procedure delivers a core which is a strict subset of intermediaries, excluding those banks that play no essential role in holding together the interbank market. It also yields a measure of distance that aggregates the structural inconsistencies between the observed network and the nearest tiering model. We use this statistic to test formally whether the extent of tiering observed in the interbank market is significantly greater than what emerges in networks formed by random processes.Our empirical work relies on comprehensive Bundesbank statistics, which we use to construct the network of bilateral interbank positions between more than 2000 banks. While most banks simultaneously borrow and lend in the interbank market, we find that the core comprises only 2.7% of such intermediaries. Tiering thus delivers a strong refinement of the concept of intermediation. Throughout the available time span (1999Q1-2007Q4), the size and composition of the optimal core remain stable. This supports the view that we have identified a truly structural feature. Moreover, we show that the extent of tiering observed in the German interbank market cannot be replicated by standard random processes of network formation.The final part of the paper explores why the banking system organizes itself around a core of money center banks by testing whether balance sheet variables predict which kind of banks form the core. The probit regressions confirm that (only) large banks tend to belong to the core, even though economies of scale and scope play a limited role. Other bank-specific ...

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Financial Intermediaries and the Saving-Investment Process

Cited by 39 publications

References 0 publications

The Substitutability of Financial Assets in the U.K. And the Implications for Monetary Aggregation*

The Substitutability of Financial Assets in the U.K. And the Implications for Monetary Aggregation*

On Financial Development and Economic Growth in the Arab Republic of Egypt

Interbank Tiering and Money Center Banks

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