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Unformatted text preview: ilures involve small FIs that are relatively undiversified productwise and geographically. For example, there were widespread failures
of smaller U.S. banks, thrifts, and insurance companies in the Southwest during the
slump in oil and gas prices in the 1980s.6,7 Other Special Services
The preceding discussion has concentrated on three general or special services provided
by FIs: reducing household savers’ monitoring costs, increasing their liquidity, and reducing their price-risk exposure. Next, we discuss two other special services provided
by FIs: reduced transaction costs and maturity intermediation or asset transformation.
Reduced Transaction Cost Just as FIs provide potential economies of scale in information collection, they also
provide potential economies of scale in transaction costs. For example, since May 1,
1975, fixed commissions for equity trades on the NYSE have been abolished. As a result, small retail buyers face higher commission charges or transaction costs than do
large wholesale buyers. By grouping their assets in FIs that purchase assets in bulk—
such as in mutual fund...
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This document was uploaded on 03/09/2014 for the course ACC 301 at HELP University.
- Spring '09