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date: 21 May 2018

Abstract and Keywords

This article examines how banks choose between relationship- and transactions-based lending, and more generally the role of debt versus equity instruments and the economic functions of banks. The arguments presented suggest that banks have a growing dependence on the capital market for sources of revenue, for raising equity capital, and for risk management, while capital market participants came to rely increasingly on banks' skills in financial innovation and portfolio management. The increased integration of banks with financial markets raises domestic and cross-border financial stability concerns, which in turn has implications for the design of domestic and international financial system regulation.

Keywords: bank lending, capital markets, portfolio management, financial markets, financial stability, financial regulation

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