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Warehouse banking

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  • Donaldson, Jason Roderick
  • Piacentino, Giorgia
  • Thakor, Anjan

Abstract

We develop a theory of banking that explains why banks started out as commodities warehouses. We show that warehouses become banks because their superior storage technology allows them to enforce the repayment of loans most effectively. Further, interbank markets emerge endogenously to support this enforcement mechanism. Even though warehouses store deposits of real goods, they make loans by writing new fake warehouse receipts, rather than by taking deposits out of storage. Our theory helps to explain how modern banks create funding liquidity and why they combine warehousing (custody and deposit-taking), lending, and private money creation within the same institutions. It also casts light on a number of contemporary regulatory policies.

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  • Donaldson, Jason Roderick & Piacentino, Giorgia & Thakor, Anjan, 2018. "Warehouse banking," Journal of Financial Economics, Elsevier, vol. 129(2), pages 250-267.
    • Handle: RePEc:eee:jfinec:v:129:y:2018:i:2:p:250-267
    DOI: 10.1016/j.jfineco.2018.04.011
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    2. Bunderson, Stuart & Thakor, Anjan V., 2022. "Higher purpose, banking and stability," Journal of Banking & Finance, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    Banking; Private money; Financial history;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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