Based on the allocation of liability, the paper examines all the modes of organizing ...nance and delegated monitoring in an economy with costly state veri...cation. Besides the mode of ...nancial intermediation (FI), a mode of direct ...nance, Conglomeration, accommodates delegated monitoring and obtains the bene...t of diversi...cation also, which, therefore, do not necessarily make FI viable, as the extant literature claims. The paper empirically predicts that the prevalence of bank

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... g could increase with the costs of banks'services or the rates of banks'loans. The paper is the ...rst to examine the market organization of a ...nancial service through the allocation of liability.