Abstract
This thesis conducts the first comprehensive empirical assessment of the theories surrounding the co-evolution of capital markets and banking system using four distinct studies which explore the spillover effects of stock market liquidity on different aspects of bank business. While an increase in stock market liquidity strengthens bank market power, it results in a decline in traditional bank business. However, banks continue to retain their market power by expanding into non-traditional business complemented by liquid capital markets. Further, enhanced stock market liquidity improves bank profitability and stability and hence provides evidence that stock markets and banks have a complementary relationship.
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