Under the influence of the Anglo-American systems, corporate finance over the past three decades has been dominated by consideration of the operation of securities markets. Recently attention has begun to switch to the role of financial intermediaries. This has occurred at the same time as financial innovation has led some observers to suggest that there is little future for financial intermediation in financing large corporate activities.

The integration of financial markets in Europe and the possible emergence of a single European currency have raised questions about the regulation of financial markets. Does increased competition endanger the stability of banking systems and should the regulation of banks change in the future? The requirement on banks to perform a central function in restructuring enterprises in Eastern Europe has made reform of banking systems of crucial importance.

A study of financial intermediation is therefore timely from the perspective of both academic analysis and policy relevance. The Fundacion Banco Bilbao Vizcaya and the Centre for Economic Policy Research organized an international conference on financial intermediation in San Sebastián in Spain on 27 and 28 March 1992. This brought together academics and policy makers from Europe and North America to discuss the latest advances in the study of financial intermediation.

This introduction begins by discussing four issues in the theory of banks: the rationale for the existence of financial intermediaries, competition in banking, bank regulation and the real effects of banks. It then turns to three policy issues: securitization and the future of banks, increased competition in Europe and the US, and banking in Eastern Europe.