A Look Back at Merton Miller's 'Financial Markets and Economic Growth'

5 Pages Posted: 1 Mar 2023

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Date Written: Winter 2012

Abstract

The author begins by agreeing with Miller's characterization of the fragility of U.S. banks and of the shortcomings of the Asian model of bank finance‐driven growth. The article also expresses “emphatic agreement” with Miller's arguments that the protection of banks through deposit insurance, regulatory forbearance, and other forms of “bailout” have created costly moral‐hazard problems that encourage excessive risk‐taking. And the author endorses, at least in principle, Miller's main argument that the development of capital markets that do not require the direct involvement of banks should make economies if not less prone to financial crises, then at least more resilient in recovering from them. But having acknowledged the limitations of bank‐centered systems and the value of developing non‐bank alternatives for savers and corporate borrowers, the author goes on to point to the surprising durability of some banking systems outside the U.S. - notably Canada's, which has not experienced major problems since the 1830s. And even more important, the author views banks and capital markets not as “substitutes” for one another, but as mutually dependent “complements” whose interdependencies and interactions must be recognized by market participants and regulators alike.

Suggested Citation

Calomiris, Charles W., A Look Back at Merton Miller's 'Financial Markets and Economic Growth' (Winter 2012). Journal of Applied Corporate Finance, Vol. 24, Issue 1, pp. 14-16, 2012, Available at SSRN: https://ssrn.com/abstract=2028473 or http://dx.doi.org/10.1111/j.1745-6622.2012.00361.x

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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