Financial Modernization and Banking Theories

1. Why are banks special? What "value added" justifies their existence?

2. How does the approval of a bank loan affect a borrowing company's stock price? Does a nonbank lender's loan approval have the same effect? Why?

3. How is banking likely to be altered by the growing importance of securitization and fee-based activities?

4. Why may banks have comparative advantages compared to securities firms and insurance companies when it comes to financial integration? How may the core activities of banks impose limits on the changes bank balance sheets undergo as a result of financial innovation?

Source: "Financial Modernization and Banking Theories." Simon Kwan, Federal Reserve Bank of San Francisco FRBSF Economic Letter, No. 2001-37, December 21, 2001, pp. 1-3.