This combination of explanatory discussion by leading financial economists and centrally important journal articles provides comprehensive and coherent coverage of the major issues in financial theory. It will help students to understand the functioning of the financial sector and the intermediary institutions that comprise it ÍNDICE:Part I: Monitoring By and Of Banks 1 John Boyd and Edward C. Prescott: Financial Intermediary Coalitions 2 Charles W. Calomiris and Charles M. Kahn: The Role of Demandable Debt in Structuring Optimal Banking Arrangements 3 Rafael Repullo and Javier Suarez: Monitoring, Liquidation, and Security Design 4 Martin Hellwig: Financial Intermediation with Risk Aversion Sudipto Bhattacharya, Arnoud W. A. Boot, and Anjan V. Thakor: Discussion Part II: Liquidity Provision via Banks and Markets 5 Douglas W. Diamond: Liquidity, Banks, and Markets 6 Bengt Holmstrom and Jean Tirole: Private and Public Supply of Liquidity 7 Sudipto Bhattacharya, Paolo Fulghieri, and Riccardo Rovelli: Financial Intermediation versus Stock Markets in a Dynamic Intertemporal Model 8 Oliver Hart and John Hardman-Moore: The Governance of Exchanges: Members' Cooperatives versus Outside Ownership Ernst-Ludwig von Thadden: Discussion Part III: Bank Runs and Financial Crises 9 V. V. Chari and Ravi Jagannathan: Banking Panics, Information and Rational Expectations Equilibrium 10 Hyun-Song Shin and Steven Morris: Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks 11 Xavier Freixas and Bruno Parigi: Contagion and Efficiency in Gross and Net Interbank Payment Systems Jean-Charles Rochet: Discussion Part IV: Regulation of Financial Intermediaries 12 Jean-Charles Rochet: Capital Requirements and the Behaviour of Commercial Banks 13 Randal Kroszner and Raghuram Rajan: Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking before 1993 14 Philippe Aghion, Patrick Bolton, and Steven Fries: Optimal Design of Bank Bailouts: The case of tr