Microeconomics of Banking
by Xavier Freixas and Jean-Charles Rochet

Provides a guide to the new microeconomic the ory of banking. Addresses why financial intermediaries exist. Explores the different theories of financial intermediation: transaction costs, liquidity insurance, coalitions of borrowers, and delegated monitoring. Discusses the industrial organization approach to banking. Examines optimal contracting between a lender and a borrower. Studies the equilibrium of the credit market, with particular attention to the possibility of rationing at equilibrium. Considers the macroeconomic consequences of financial imperfections. Examines individual bank runs and systemic risk. Addresses the management of risks inside the banking firm. Discusses bank regulation and its economic justifications. Includes end-of-chapter problems and solutions. Jean-Charles Rochet is Professor of Economics at Universite des Sciences Sociales de Toulouse.