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The role of demand deposits in risk sharing

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  • Samartín, Margarita

Abstract

Based on the work of Hellwig [12], this paper compares the implementation of the second best allocation (non traded solution) by a fmancial intermediary to the one achieved in a walrasian market in which individuals hold the assets directly (traded solution). In this framework, in which individuals have smooth preferences, the traded and non traded solutions are no longer welfare equivalent; in fact, the non traded solution allows for greater risk sharing than the traded one. This result, and contrary to Hellwig's work, shows that fmancial intermediaries do provide for a positive role in the economy.

Suggested Citation

  • Samartín, Margarita, 1998. "The role of demand deposits in risk sharing," DEE - Working Papers. Business Economics. WB 6530, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:6530
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    References listed on IDEAS

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    4. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    5. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-592, June.
    6. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
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