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This study presents a theory of financial infrastructure - or the set of rules, institutions, and systems within which agents carry out financial transactions. It investigates the effects of financial infrastructure development on financial architecture and real capital accumulation, taking into account financial-sector special interests. It shows that a more developed infrastructure promotes financial market growth, reduces the scope of traditional banking, and helps investors make more efficient investment decisions. The theory presented explains why traditional banking predominates in the early stages of economic development and becomes relatively less important as the economy develops, and why banks may retard financial sector development. The study provides evidence in support of its predictions.

Banks and Banking --- Finance: General --- Infrastructure --- Investments: Stocks --- Financial Institutions and Services: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Markets and the Macroeconomy --- Investment --- Capital --- Intangible Capital --- Capacity --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Finance --- Banking --- Macroeconomics --- Investment & securities --- Financial market infrastructure --- Financial sector development --- Stocks --- Financial services industry --- Banks and banking --- Saving and investment

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Finance, Public --- Fiscal policy