Working Paper

Market- vs. bank-based financial systems: do investor rights really matter?

Abstract: Why are common-law countries market-dominated and civil-law countries bank-dominated when either financial structure can promote economic growth? This paper provides an explanation tied to legal traditions. Civil-law courts have been less effective in resolving conflicts than common-law courts because civil-law judges traditionally refrain from interpreting the codes and creating new rules. Banks can induce borrowers to honor their obligations by threatening to withhold services that only banks can provide.

Keywords: Comparative law; Financial markets;

https://doi.org/10.26509/frbc-wp-200101r

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2002

Number: 0101R