Stability through financial embeddedness

Romar Correa

International Journal of Social Economics, 2009, vol. 36, issue 10, 1021-1033

Abstract: Purpose - The purpose of this paper is to appraise the transition from bank‐based systems to universal banking. Design/methodology/approach - The Wynne Godley and Francis Cripps macroeconomic framework is used to structure the argument. Findings - It is shown that the activity of oligopolistic firms leads, through their build‐up of inventories, to an unstable system. However, the industrial structure of an economy might be embedded in a network of inter‐bank linkages. The coupling of real and credit activities delivers a weak stability. Research limitations/implications - The paper is an attempt to marry a structural cycle model with the institutional transformations. The cyclical model could be made more complex and the institutional analysis richer, thereby generating a thicker set of connections between the two. Practical implications - The conclusion is that firewalls should be reconstructed between the traditional functions of banks as a conduit in the production of goods and services, and other financial entities involved in financial innovations. Originality/value - Schools of political economy that theorise the transformation of the regime of accumulation of yesteryear are synthesised into financialisation and potential instability.

Keywords: Banks; Business cycles; Political economy; Economic cycles (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijsepp:v:36:y:2009:i:10:p:1021-1033

DOI: 10.1108/03068290910984795

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