Dimensions: 6.5'' x 9.5'' 221 pages AEI Press  (Washington) Publication Date: October 1996 Paperback ISBN: 0844739898 Price: $ 14.95 Add to Cart   Examination Copies

Revolutionary changes have recently rocked financial markets--the collapse of the thrifts, the shrinking of traditional banking, the growing dominance of institutional investors, the mushrooming of derivatives markets, and the expansion of trading in foreign securities. This book examines the growth of mutual funds and derivatives markets and the decline of banks and explores implications of those developments for financial stability and regulatory policy. One of the book's central conclusions is that the current system of bank regulation is out of step with today's financial realities and needs to be substantially changed.

Franklin Edwards asserts that the best way to incresae the freedom of financial institutions to compete while making the financial system less vulnerable to excessive risk-taking by individual financial institutions is to adopt a system of collateralized banking. He shows how adopting such a system will result in a more stable financial system, both by reducing our reliance on government to maintain financial soundness and by enhancing the effectiveness of private markets in controlling institutional risk-taking.

Franklin R. Edwards is the Arthur F. Burns Professor at the Graduate School of Business at Columbia University.