IDEAS home Printed from https://ideas.repec.org/a/eee/crcspp/v26y1987ip289-333.html
   My bibliography  Save this article

Bank deregulation, credit markets, and the control of capital

Author

Listed:
  • Gorton, Gary B.
  • Haubrich, Joseph G.

Abstract

A model with endogenously arising credit markets and banks is displayed. The model economy requires both types of institutions because they serve to control capital in different, yet complementary, ways. The value of credit market securities depends upon bank control of capital which markets cannot achieve. As regulations and technology change, the decision rules and contracts change, and the financial system creates new institutions, markets and assets. Since the model is at the level of underlying preferences and technology it can be used to consider the optimality of banking regulations when the underlying technology of controlling capital shifts. We show that, whatever the merits of the original arguments for bank regulation, with technological change bank regulation may become self-justifying. That is, we show that under plausible conditions the only reason bank regulation is needed is that it currently exists. Moreover, bank regulation can cause the very bank failures it purports to prevent. Bank regulators observing the world would erroneously argue for more bank regulations, including FDIC insurance, when this is, in fact, unnecessary.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Gorton, Gary B. & Haubrich, Joseph G., 1987. "Bank deregulation, credit markets, and the control of capital," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 289-333, January.
  • Handle: RePEc:eee:crcspp:v:26:y:1987:i::p:289-333
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0167-2231(87)90030-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 559-588, August.
    2. William P. Osterberg, 1992. "Intervention and the bid-ask spread in G-3 foreign exchange rates," Economic Review, Federal Reserve Bank of Cleveland, vol. 28(Q II), pages 2-13.
    3. Marvin Goodfriend & Robert G. King, 1988. "Financial deregulation, monetary policy, and central banking," Economic Review, Federal Reserve Bank of Richmond, vol. 74(May), pages 3-22.
    4. Randall Pozdena, 1991. "Why banks need commerce powers," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 18-31.
    5. João Santos, 1998. "Commercial Banks in the Securities Business: A Review," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(1), pages 35-60, July.
    6. Gorton, Gary B. & Pennacchi, George G., 1995. "Banks and loan sales Marketing nonmarketable assets," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 389-411, June.
    7. Boyd, John H. & Chang, Chun & Smith, Bruce D., 2002. "Deposit insurance: a reconsideration," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1235-1260, September.
    8. Joseph G. Haubrich, 1995. "Imperfect state verification and financial contracting," Working Papers (Old Series) 9506, Federal Reserve Bank of Cleveland.
    9. João A. C. Santos, 1998. "Banking and commerce: how does the United States compare to other countries?," Economic Review, Federal Reserve Bank of Cleveland, vol. 34(Q IV), pages 14-26.
    10. Miarka, Tobias, 1999. "The recent economic role of bank-firm relationships in Japan," Discussion Papers, Research Unit: Market Dynamics FS IV 99-36, WZB Berlin Social Science Center.
    11. Sun, Hongfei, 2007. "Aggregate uncertainty, money and banking," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1929-1948, October.
    12. Mitchell Berlin, 1987. "Bank loans and marketable securities: how do financial contracts control borrowing firms?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 9-18.
    13. João A. C. Santos, 2000. "Bank capital regulation in contemporary banking theory: a review of the literature," BIS Working Papers 90, Bank for International Settlements.
    14. Joseph G. Haubrich, 1992. "Sluggish deposit rates: endogenous institutions and aggregate fluctuations," Economic Review, Federal Reserve Bank of Cleveland, vol. 28(Q II), pages 23-35.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:crcspp:v:26:y:1987:i::p:289-333. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jme .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.