The design of financial systems: An overview

I examine the multifaceted aspects of financial system design, focusing on the real effects of this design. My exploration of the key issues and my review of the related literature pertain to three dimensions of financial system design: (i) the permissible scope of activities for banks and other depository financial intermediaries, (ii) the regulations dictating the structure of the banking industry, and (iii) information disclosure requirements in the financial market. I address a diverse set of issues such as borrowers' choices of financing source and how these are affected by financial system design, the impact of financial system design on the capital structure and corporate control decisions of nonfinancial firms, the relationship between financial system architecture and the liability claims of banks, the issues surrounding the desired permissible scope of banking and bank industry structure, and the overall design of a financial system.