|Language:||English, Spanish, Arabic|
|ePub File Size:||30.85 MB|
|PDF File Size:||16.71 MB|
|Distribution:||Free* [*Sign up for free]|
Robert C. Merton and Robert T. Thakor Financial institutions have both investors and customers. Customers of a financial intermediary, in contrast, provide financing in exchange for a specific set of services, and do not want the fulfillment of these services to be contingent on the credit risk of the intermediary, even when they are not small, uninformed agents lacking in sophistication. This paper develops a framework that defines the roles of customers and investors in intermediaries, and uses the framework to provide an economic foundation for the aversion to intermediary credit risk on the part of its customers.