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Mike Buckle and John Thompson

2.1   Introduction We saw in chapter 1 that financial intermediation is one of the key functions of a financial system, connecting savers and borrowers and directing funds towards productive investments. In this chapter our primary aim is to describe the process of financial intermediation and in doing so we examine the arguments as to why we

in The UK financial system (fifth edition)
Theory and practice
Authors: Mike Buckle and John Thompson

The early part of the twenty-first century has witnessed a sea-change in regulation of the financial system following the financial crisis of 2007-2008. Prior to that financial crisis, the official policy was directed to deregulating the financial system, whereas after 2008 the move is towards increased regulation. This book begins the study of the UK financial system with an introduction to the role of a financial system in an economy, and a very simple model of an economy. In this model the economy is divided into two distinct groups or sectors. The first is the household sector and the second is the firms sector. The book describes the process of financial intermediation, and in doing so, it examines the arguments as to why we need financial institutions. It highlights the nature of financial intermediation, and examines the various roles of financial intermediaries: banks as transformers, undertaking of transformation process, and providers of liquidity insurance. The nature of banking, the operations carried out by banks, and the categories of banking operations are discussed next. The book also examines the investment institutions and other investment vehicles. It examines the role of central banks in the financial system in principle, particularly, the role of the Bank of England. Primary market for equity issues, secondary market, the global stock market crash of October 1987 and efficient markets hypothesis are also covered. The book also looks at the trading of financial derivatives, risk management, bank regulation, and the regulation of life insurance companies, pension funds.

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Types of banks and the risks they face
Mike Buckle and John Thompson

possessed by other firms (i.e. they possess monopoly powers in certain directions) or because they have a comparative advantage in the marketplace. In recent years banks have seen their monopoly position eroded as the kind of technological developments discussed above have lowered barriers to entry. The process of financial intermediation can be subdivided into a number of constituent

in The UK financial system (fifth edition)
Julian Gruin

path of financial reform since the early 1990s, I trace the implications of the duality of the role that it fulfilled under the aegis of CCP control, firstly as an economically effective mechanism for financial intermediation within the real economy, and secondly as a politically effective mechanism for preserving centralized power and authority over the benefits of that financial intermediation. The institutional and regulatory reforms that took place during the 1990s and 2000s do not overshadow the continuity of this function. Indeed, as will be discussed in later

in Communists constructing capitalism
State, market, and the Party in China’s financial reform
Author: Julian Gruin

Over more than thirty years of reform and opening, the Chinese Communist Party has pursued the gradual marketization of China’s economy alongside the preservation of a resiliently authoritarian political system, defying long-standing predictions that ‘transition’ to a market economy would catalyse deeper political transformation. In an era of deepening synergy between authoritarian politics and finance capitalism, Communists constructing capitalism offers a novel and important perspective on this central dilemma of contemporary Chinese development. This book challenges existing state–market paradigms of political economy and reveals the Eurocentric assumptions of liberal scepticism towards Chinese authoritarian resilience. It works with an alternative conceptual vocabulary for analysing the political economy of financial development as both the management and exploitation of socio-economic uncertainty. Drawing upon extensive fieldwork and over sixty interviews with policymakers, bankers, and former party and state officials, the book delves into the role of China’s state-owned banking system since 1989. It shows how political control over capital has been central to China’s experience of capitalist development, enabling both rapid economic growth whilst preserving macroeconomic and political stability. Communists constructing capitalism will be of academic interest to scholars and graduate students in the fields of Chinese studies, social studies of finance, and international and comparative political economy. Beyond academia, it will be essential reading for anyone interested in the evolution of Chinese capitalism and its implications for an increasingly central issue in contemporary global politics: the financial foundations of illiberal capitalism.

Why China survived the financial crisis
Shalendra D. Sharma

banking sector is the single most essential element of a healthy financial system. This is particularly relevant in transitional economies like the PRC, where markets for corporate securities are limited and much of the lending unsecuritized. In such settings the banking sector constitutes the main institutions that can (and must) effectively evaluate and monitor the risks and returns on financial intermediation, including the evaluation of borrowers’ creditworthiness, and can enforce financial contracts, loan recovery and the realization of collateral. Given these awesome

in The Asian financial crisis
Constructing capitalism in the 1990s
Julian Gruin

allocation was to relate to the broader sphere of production. It remained ­institutionally incapable of performing the ideal liberal role of financial intermediation in an increasingly market-oriented ­economy 105 communists constructing capitalism (Dipchand et al. 1994; Tam 1995; Lardy 1998). Yet China’s overall growth rate averaged 11.5 per cent between 1991 and 1997. As recent studies of the impact of China’s financial repression have argued, whilst it is possible that deeper reform and a more liberalized financial sector would have increased this growth rate, it is

in Communists constructing capitalism
Mike Buckle and John Thompson

how changes in the financial environment and the changing preferences of borrowers and international banks have led to a move away from international financial intermediation through banks to direct financing through greater use of the international capital markets. 11.2   Eurobonds In this section we examine the nature of eurobonds, the reasons for

in The UK financial system (fifth edition)
Julian Gruin

as a sustainable political form. This demands an understanding of Chinese development as a distinctive, unique, yet nonetheless thoroughly modern process of confronting the contradictions and tensions of capitalist governance. This book has argued that one path towards this is to focus upon the mechanisms through which trust is achieved, thereby ­managing 217 communists constructing capitalism the inherent uncertainty of socio-economic action. China’s ­capitalism has achieved this through a gradual deepening of the market’s role in financial intermediation and the

in Communists constructing capitalism
Mike Buckle and John Thompson

is provided by the functional approach to financial intermediation (see chapter 2 ). Allen and Santomero ( 1998 ) argue that to understand developments in financial intermediation we should focus on the functions provided by intermediaries rather than on the institutions. It has been argued by Davis ( 2000 ) that the reason for the greater growth of investment

in The UK financial system (fifth edition)