ABSTRACT
This part conclusion presents some closing thoughts on the key concepts discussed in the preceding chapters. The part considers the effect of constraints on financial institutions, particularly commercial banks, on economic growth. It examines a broad spectrum of constraints on capital markets before concentrating on the presumed bank “credit crunch.” The part provides some graphs depicting the high-yield bond market and demonstrates that a credit crunch characterized or exacerbated the 1990–1991 recession. It outlines a regulatory scheme, based on higher capital requirements and structured early intervention and resolution, that would allow banks to serve the public efficiently and would obviate the possibility of a bank-caused “credit crunch.” A “bank credit crunch” may be defined operationally as the failure of banks to provide loans to borrowers who, in the absence of the “crunch,” would be granted loans. Commercial banks have comparative advantages over specialized lenders in that banks can achieve economies of scope from commonly producing deposit, lending, and collateral services.
