Market-Based Banking and the International Financial Crisis

Abstract

Existing analytical frameworks are unable to explain the differential impact of the recent international financial crisis on developed world economies. The chapters of this edited volume develop an original ‘market-based banking’ analytical framework and apply this to eleven national banking systems. We argue that levels of market-based banking are a more useful way to compare national banking systems and serve, when combined with a focus on other market sources of non-financial corporation financing, to provide an alternative to the standard dichotomy of bank-based and market-based financial systems. The chapters in this volume consider the degree of market-based assets and liabilities in banks in the eleven banking systems and highlight the differences between systems. They demonstrate how these details help explain the differential impact of the financial crisis in terms of timing, the required levels of government support to banking systems, and the impact of the crisis on lending to NFCs. The chapters also seek to explain the economic and institutional factors that resulted in the features of market-based banking in the different systems.