Banks as Liquidity Providers : An Explanation for the Coexistence of Lending and Deposit-Taking
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
Year of publication: |
[2003]
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Authors: | Kashyap, Anil K. |
Other Persons: | Rajan, Raghuram G. (contributor) ; Stein, Jeremy C. (contributor) |
Publisher: |
[2003]: [S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
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