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Piggy Banks

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Abstract

What do banks do? Ask an economist and you’ll get a variety of answers. Banks play a vital role in allocating capital by linking savers and borrowers; they produce information by screening and monitoring borrowers; they create liquidity; they share and distribute risk; they engage in maturity transformation by borrowing short and lending long. What you won’t usually hear is that banks may help people stick to an optimal savings plan that they might not be able to stick to if they invested their money themselves. In other words, banks may serve as piggy banks by preventing people from consuming assets when the return to investing is high, even when the temptation to consume is strong.

Suggested Citation

  • Donald P. Morgan & Katherine A. Samolyk, 2013. "Piggy Banks," Liberty Street Economics 20130529, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86873
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    File URL: https://libertystreeteconomics.newyorkfed.org/2013/05/piggy-banks.html
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    More about this item

    Keywords

    Banks; Savings; Commitment Problems; Financial Intermediation; Commitment Device;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • G2 - Financial Economics - - Financial Institutions and Services

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