... institutions and markets overtime appear to be quite important. Despite obvious connections amongpolitical, legal, economic, and financial institutions and markets, long-termcausal relationships ... Merton, 1995b). Regulation affects solvency and liquidity with thefinancial institution. Diamond and Rajan (2000) show that bank capitalaffects bank safety, the bank’s ability to refinance, and ... allocation of capital within an economy fosters economic growth (see Levine, 1997). Financialintermediation can affect economic growth by acting on the saving rate, on the fraction of saving channeled...