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FINANCIAL INTERMEDIATION AND FINANCIAL INNOVATION IN A CHARACTERISTICS FRAMEWORK
Author(s) -
Blake David
Publication year - 1996
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.1996.tb00836.x
Subject(s) - financial intermediary , financial innovation , balance sheet , intermediation , finance , economics , asset (computer security) , supply and demand , business , financial system , microeconomics , computer security , computer science
A bstract This paper shows that the characteristics model provides a unifying framework for analysing both financial intermediation and the process of financial innovation. The role of the financial intermediary is to buy‐in the primary liabilities of the firm, unbundle and repackage the characteristics contained in them and issue a set of ultimate assets to households. Assets exist because the balance between the supply of and demand for asset characteristics indicates an interior equilibrium. Financial innovations arise whenever changes in supply and demand induce movements from a corner solution to the interior. A number of existing explanations of financial innovation can be expressed using this framework.