ON UNIVERSAL BANKING SYSTEMS (FINANCIAL CONTRACTS)

This dissertation investigates the attributes and optimality of banking systems, their origins and regulatory evolution and the interdependence of banking and bankruptcy law.; The first part develops an analytic framework in form of a sequential game about investment in managerial resources by banks, financial contracting and optimal restructuring. Particular banking systems are interpreted as subgame-perfect equilibria of this game. Universal banking results in renegotiation-proof optimal mixed finance (debt-equity) contracts with restructuring and investment in organizational capital leading to German style financial intermediation. Specialized banking admits optimal contracts only in the case of separate but simultaneous debt and equity finance and with non-duplication of investment in restructuring capabilities. Universal financial intermediation is then related to main-banking and reforming banking systems of economies in transition.; Banking systems have historically changed in response to particular economic or institutional challenges. Drawing on the evolution of Germany's financial system toward universal banking in the late 19th century, the origins of universal banks are investigated in the basic contracting framework espousing two different perspectives. First, universal financial intermediation is argued to have resulted from a search for equilibrium that is to be interpreted as "learning by banking". Second, politically motivated liquidity constraints and scarcity of managerial skills are shown to imply a concentrated universal banking system as equilibrium outcome. Finally, the stability of financial systems and the duality between markets for financial claims and managerial skills are discussed.; Financial systems and bankruptcy law define the legal environment of financial contracts by, respectively, restricting financial intermediaries to certain contracts and defining reorganization proceedings. Financial contracting and distress thus link these institutions. By defining institutional complementarity in terms of the subgame perfection of a sequential game induced by a given set of institutions, the third part studies the interplay of banking and bankruptcy arrangements for two polar cases: the US and Germany. It is found that both sets of institutions are complementary and correspond to different subgame perfect equilibria. Incentive and commitment issues in financial contracting are discussed and institutional evolution arising from the need for complementarity are related to banking and bankruptcy reform.