Financial Contracting, Reorganization and Mixed Finance: A Theory of Universal Banking

Posted: 23 Aug 1998

See all articles by Robert B. H. Hauswald

Robert B. H. Hauswald

American University - Department of Finance and Real Estate

Abstract

Focusing on the combination of commercial and investment banking inherent in universal financial intermediation, optimal transfer of control, modes of corporate governance and the structure of particular banking systems are developed in a two-stage game about investment in managerial resources by banks, financial contracting and optimal restructuring of companies. Particular banking systems are interpreted as subgame-perfect equilibria of the overall game. It is shown that universal banking results in renegotiation-proof optimal mixed finance (combined debt-equity) contracts with reorganization and investment in organizational capital which leads to German style financial intermediation. Specialized banking admits optimal contracts only in the case of separate but simultaneous debt and equity finance (joint contracts) and with non-duplication of investment in restructuring capabilities. Finally, universal financial intermediation is related to main-banking and some principles for reforming banking systems of economies in transition are presented.

JEL Classification: G21, G24, G32, G33

Suggested Citation

Hauswald, Robert B.H., Financial Contracting, Reorganization and Mixed Finance: A Theory of Universal Banking. Available at SSRN: https://ssrn.com/abstract=6775

Robert B.H. Hauswald (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1996 (Phone)
202-885-1946 (Fax)

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