Legal Analysis of bank in the Iranian commercial market based on the theory of transaction costs

Abstract

Understanding the necessity of establishing a bank in Iran requires a correct realizing of the mechanism of the money market in an era in which banks had no place or position. At that time distrusting on the borrower credits, lack of reliable information about the number and place of lenders, rising interest rates and the prevalence of high- interest borrowing were some of the costs that transaction parties faced. As per theory of transaction costs, the solution to reduce the costs at the situation that the market operates according to the price mechanism is to form corporations and the intermediaries in the monetary market that they are banks. given this interpretation, due to the high costs that the Iranian businessmen and governors had been acknowledged, establishment of banking at the country monetary market were necessary for trade and profitability. The history and the situations led to establish of banking in Iran didn’t receive well attention as much as privileges that given to foreign governments. In fact, banks could decrease two kinds of transactions costs: 1) Before establishing of the bank - due to the lack of a strong and trusted intermediary between the parties - people incurred heavy costs. 2) bank, in its nature is an especially intermediary that eliminated many of the transaction costs of individual intermediation in the monetary market. Thus, at that time (in an era in which The Imperial Bank of Iran established), the benefits and legal relationships that result from the formation of a banking institution in the country sacrificed to the enjoyment of foreigners beyond weakness and degeneration of Iran’s governors. because, the policy of the government of Iran at that time was nothing but to keep our country away from productive business affairs and the real capacities of the bank.