This textbook brings together and explains the main theoretical developments in economic thinking about financial markets and institutions since the 1970s. It relates this theory to the main financial developments in the USA, the UK, and other Anglo-Saxon countries. After a preliminary discussion of financial markets and their transparency, it looks at the role of financial intermediaries such as banks. It argues that these institutions can compete with efficient markets because they are confidential. The book goes on to discuss bank credit rationing, bank failure and systemic risk, and the way in which regulation can control these risks. This book is intended for final-year undergraduate and graduate/MBA students taking a course in financial economics, for the segment on financial institutions and regulation; practitioners working in financial institutions.