The term-structure of investment and the banks' insurance function
AbstractThe article re-examines the proposition, first formulated by Bryant (1980) and Diamond and Dybcvig ( 1983), that in a production economy with stochastic liquidity shocks to the household sector, banks serve to provide optimal intertemporal insurance to consumers. The paper argues that in order to understand the moral hazard problems inherent in this insurance problem, it is too narrow to consider solely the role of banks as providers of liquidity. The paper develops a model with several investment opportunities in which banks have the additional function of asset diversification.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 41 (1997)
Issue (Month): 7 (July)
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Web page: http://www.elsevier.com/locate/eer
Other versions of this item:
- Ernst-Ludwig VON THADDEN, 1996. "The Term-Structure of Investment and the Banks' Insurance Function," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9606, Université de Lausanne, Faculté des HEC, DEEP.
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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- Fecht, Falko & Martin, Antoine, 2005.
"Banks, markets, and efficiency,"
Discussion Paper Series 2: Banking and Financial Studies
2005,04, Deutsche Bundesbank, Research Centre.
- Gersbachd, Hans, 1998. "Liquidity Creation, Efficiency, and Free Banking," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 91-118, January.
- Jochen Güntner, 2013. "The federal funds market, excess reserves, and unconventional monetary policy," Economics working papers 2013-12, Department of Economics, Johannes Kepler University Linz, Austria.
- Matias Fontenla, 2004. "Banks and Capital Inflows," Econometric Society 2004 Latin American Meetings 272, Econometric Society.
- Alexander Zimper, 2011.
"Optimal liquidity provision through a demand deposit scheme: The Jacklin critique revisited,"
208, Economic Research Southern Africa.
- Alexander Zimper, 2013. "Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited," German Economic Review, Verein für Socialpolitik, vol. 14(1), pages 89-107, 02.
- Ernst-Ludwig VON THADDEN, 1998.
"Liquidity Creation through Banks and Markets : Multiple Insurance and Limited Market Access,"
Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP)
9820, Université de Lausanne, Faculté des HEC, DEEP.
- von Thadden, Ernst-Ludwig, 1999. "Liquidity creation through banks and markets: Multiple insurance and limited market access," European Economic Review, Elsevier, vol. 43(4-6), pages 991-1006, April.
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