Work

Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit‐taking

Year: 2002

Type: article

Abstract: ABSTRACT What ties together the traditional commercial banking activities of deposit‐taking and lending? We argue that since banks often lend via commitments, their lending and deposit‐taking may be two manifestations of one primitive function: the provision of liquidity on demand. There will be synergies between the two activities to the extent that both require banks to hold large balances of liquid assets: If deposit withdrawals and commitment takedowns are imperfectly correlated, the two activities can share the costs of the liquid‐asset stockpile. We develop this idea with a simple model, and use a variety of data to test the model empirically.

Source: The Journal of Finance

DOI: 10.1111/1540-6261.00415

Authors: Anil K. Kashyap, Raghuram Rajan, Jeremy C. Stein

Institutions: University of Chicago, Harvard University

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3021731726

FWCI: 41.77

Cites: 52

Cited by: 1,591

Related to: 10