The paper characterizes the main theoretical models which suggest that despite the outcomes of the Arrow-Debreu model suggesting that banks have no grounds for their existence in the real economy. However, borrowers and lenders still prefer to deal through banks as financial intermediaries. The paper includes traditional reasons for banking activity increasing the utility functions of borrowers and lenders by covering a number of gaps in their contradictory preferences. Moreover, the paper presents further reasons for banking activity such as liquidity insurance, information-sharing coalitions, delegated monitoring and transaction costs.
Financed by the National Centre for Research and Development under grant No. SP/I/1/77065/10 by the strategic scientific research and experimental development program:
SYNAT - “Interdisciplinary System for Interactive Scientific and Scientific-Technical Information”.