Banks as Secret Keepers
Year: 2014
Type: article
Abstract: Banks produce short-term debt for transactions and storing value. The value of this debt must not vary over time so agents can easily trade it at par like money. To produce money-like safe liquidity, banks keep detailed information about their loans secret, reducing liquidity if needed to prevent agents from producing costly private information about the banks' loans. Capital markets involve information revelation, so they produce risky liquidity. The trade-off between less safe liquidity and more risky liquidity determines which firms choose to fund projects through banks and which ones through capital markets. (JEL D92, E51, G21, G31, G32)
Source: American Economic Review
DOI: 10.1257/aer.20140782
Institutions: Columbia University, Yale University, Rutgers, The State University of New Jersey, Boston College, Commodity Futures Trading Commission, National Bureau of Economic Research, Chinese University of Hong Kong, Banque de France, Federal Reserve Board of Governors, Massachusetts Institute of Technology, Université de Montréal, University of Pennsylvania
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3122771827