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Financial Intermediation and Financial Innovation in a Characteristics Framework

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  • Blake, David

Abstract

This paper shows that the characteristics model provides a unifying framework for analyzing both financial intermediation and the process of financial innovation. The role of the financial intermediary is to buy-in the primary liabilities of firms, unbundle and repackage the characteristics contained in them, and issue a set of ultimate assets to households. Assets exist because the balance between the supply of and demand for asset characteristics indicates an interior equilibrium. Financial innovations arise whenever changes in supply and demand induce movements from a corner solution to the interior. A number of existing explanations of financial innovation can be expressed using this framework. Copyright 1996 by Scottish Economic Society.

Suggested Citation

  • Blake, David, 1996. "Financial Intermediation and Financial Innovation in a Characteristics Framework," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(1), pages 16-31, February.
    • Handle: RePEc:bla:scotjp:v:43:y:1996:i:1:p:16-31
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    Cited by:

    1. Kerstens, Kristiaan & Mazza, Paolo & Ren, Tiantian & Van de Woestyne, Ignace, 2022. "Multi-Time and Multi-Moment Nonparametric Frontier-Based Fund Rating: Proposal and Buy-and-Hold Backtesting Strategy," Omega, Elsevier, vol. 113(C).
    2. Ozili, Peterson K, 2023. "Determinants of Fintech and Bigtech lending: the role of financial inclusion and financial development," MPRA Paper 117465, University Library of Munich, Germany.
    3. Bilbao-Terol, Amelia & Álvarez-Otero, Susana & Bilbao-Terol, Celia & Cañal-Fernández, Verónica, 2017. "Hedonic evaluation of the SRI label of mutual funds using matching methodology," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 213-227.

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