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The Development of Opacity in U.S. Banking

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  • Gary Gorton

Abstract

An examination of U.S. banking history shows that economically efficient private bank money requires that information-revealing securities markets for bank liabilities be closed. That is, banks are optimally opaque, which is why they are regulated and examined. I show this by examining the transition from private bank notes, the predominant form of money before the U.S. Civil War, to demand deposits and show that markets endogenous closed. The opacity of bank money in the recent financial crisis is also briefly discussed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19540.

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Date of creation: Oct 2013
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Handle: RePEc:nbr:nberwo:19540

Note: CF DAE ME
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  1. Gary Gorton & Andrew Metrick, 2010. "Securitized Banking and the Run on Repo," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
  2. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153, September.
  3. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-81, December.
  4. Olivier Armantier & Eric Ghysels & Asani Sarkar & Jeffrey Shrader, 2011. "Stigma in financial markets: evidence from liquidity auctions and discount window borrowing during the crisis," Staff Reports 483, Federal Reserve Bank of New York.
  5. Gorton, Gary, 1985. "Clearinghouses and the Origin of Central Banking in the United States," The Journal of Economic History, Cambridge University Press, vol. 45(02), pages 277-283, June.
  6. Timberlake, Richard H, Jr, 1984. "The Central Banking Role of Clearinghouse Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 1-15, February.
  7. Tri Vi Dang & Gary Gorton & Beng Holmstrom & Guillermo Ordonez, 2014. "Banks as Secret Keepers," PIER Working Paper Archive 14-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Gorton, Gary, 1999. "Pricing free bank notes," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 33-64, August.
  9. Gorton, Gary, 1996. "Reputation Formation in Early Bank Note Markets," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 346-97, April.
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