Financial intermediation failure in economics is defined by four structural mechanisms: insecure property rights, regulatory price ceilings on interest rates (usury laws), politicized lending distorting resource allocation toward unmeritorious borrowers, and systemic trust deficits leading to bank runs or reputational scandals. This theory operates within the domain of financial systems and macroeconomics, specifically addressing the conditions under which efficient capital flow between savers and borrowers is disrupted due to institutional voids rather than market friction alone. The core principle posits that a functional intermediary system requires secure asset titles, equilibrium pricing freedom, merit-based credit allocation, and depositor confidence as non-negotiable prerequisites for economic growth in developing nations.
Financial intermediation failure in economics is defined by four structural mechanisms: insecure property rights, regulatory price ceilings on interest rates (usury laws), politicized lending distort…