Liquidity Provision, Interest-Rate Risk, and the Choice between Banks and Mutual Funds
AbstractThis paper incorporates interest-rate risk and borrower moral hazard into the Diamond-Dybvig model. These new features enable a comparison of liquidity provision by monitoring and nonmonitoring financial intermediaries (banks and mutual funds). Bank monitoring weakens lending-rate constraints and thereby leads to improved risk sharing and enhanced interim investment. All else the same, high levels of consumer liquidity needs and risk aversion, high levels of interest rates and interest-rate variability, and low costs of bank monitoring appear to favor the choice of banks over mutual funds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 159 (2003)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.mohr.de/jite
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Ioannis Lazopoulos, 2010.
"Optimal Intermediation Under Aggregate Consumption Uncertainty,"
School of Economics Discussion Papers
0710, School of Economics, University of Surrey.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert).
If references are entirely missing, you can add them using this form.