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Article: Moral hazard under commercial and universal banking.(Comparative Financial Systems)
- Article from:
- Journal of Money, Credit & Banking
- Article date:
- August 1, 1998
- Author:
CopyrightCOPYRIGHT 1998 Ohio State University Press. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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For Many Decades, commercial banks in the United States have been prohibited from making equity investments in the firms they serve. Rather, they are restricted to providing them with loans in the form, essentially, of debt contracts. This longstanding regulatory restriction(1) results in distinctly different roles for bank lenders and equity investors, and has had important implications for the entire financial sector.
The American system of "commercial banking" presents a sharp contrast with the banking systems of some other countries, most notably Germany, in which banks are permitted to take equity positions. Under such "universal banking" arrangements, ...