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.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 159 (2003)
Issue (Month): 3 (September)
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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
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- Lazopoulos, Ioannis, 2013.
"Liquidity uncertainty and intermediation,"
Journal of Banking & Finance,
Elsevier, vol. 37(2), pages 403-414.
- Ioannis Lazopoulos, 2010. "Optimal Intermediation Under Aggregate Consumption Uncertainty," School of Economics Discussion Papers 0710, School of Economics, University of Surrey.
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