A Study On The Relationship Between The Development Of Financial Intermediaries And Financial Stability

This paper discusses the effects of financial intermediarization on the financial stability based on financial stability theory. With the globalization of world market, the financial stability has been becoming overwhelmingly important. the financial stability is necessary for an efficient market, which provides the benchmark for making decisions on allocating the scarce resources and creating a health environment for both saving and investing. The paper analysis three factors influencing the financial stability, namely the stabilities of currency, asset prices and financial institutions. Many scholars consider the financial stability as the stability of financial institutions, especially the stability of banks, or the operating stability of the main financial institutions in the financial system, which ensures the market confidence. The financial instability is mainly represented by the fragility of financial intermediaries and the abnormal fluctuations of asset prices that imply the demand of monitoring and regulating. In the extreme case, the collapse of financial system may impose damaging effects on the economic activities and even the political structure. based on this theory, this paper demonstrates the importance of financial intermediaries to financial. The significance of financial intermediaries is not only to reduce the exchange cost and information asymmetry. The financial intermediaries markets more efficient because of its advantages over risk management and participating cost as well as providing liquidity insurance. Besides, the interactive competitions and developments between financial intermediaries and direct financing promote the effectiveness of the whole financial market. however, we should see the two sides of the coin at the same time, the financial intermedirization has negative effects because they bear some instable factors themselves. The'agent problem'and the'derived risk transferring problems'deviate the investing decisions from the profit maximization. For example, the risk transferring tendency of financial intermediaries( bank & institution investor) may possibly lead to the deviation of the asset equilibrium prices from their true value,...