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Banks in the Market for Liquidity

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Author Info

  • Peter Garber
  • Steven Weisbrod

Abstract

Banks are unique among financial institutions because they are the cheapest source of liquidity in the economy. Banks choose to hold reserves to facilitate settlement of end-of-day net due to positions arising from payments operations. Money market substitutes for bank liabilities do not escape from the cost of reserves since their issuers lean on banks to provide liquidity. Since the cost of reserves falls on all issuers of less liquid liabilities seeking access to payment services, including non-bank intermediaries, reserves cannot represent a tax on the banking system alone.

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File URL: http://www.nber.org/papers/w3381.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3381.

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Date of creation: Jun 1990
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Handle: RePEc:nbr:nberwo:3381

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  1. Marvin S. Goodfriend, 1988. "Money, credit, banking, and payment system policy," Proceedings, Federal Reserve Bank of Richmond, pages 247-284.
  2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
  3. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
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Cited by:
  1. Evan Gatev & Til Schuermann & Philip E. Strahan, 2009. "Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 995-1020, March.
  2. Philip Strahan, 2008. "Liquidity Production in 21st Century Banking," NBER Working Papers 13798, National Bureau of Economic Research, Inc.
  3. Herschel I. Grossman, 1991. "Monetary Economics: A Review Essay," NBER Working Papers 3686, National Bureau of Economic Research, Inc.
  4. Evan Gatev & Philip Strahan, 2008. "Liquidity Risk and Syndicate Structure," NBER Working Papers 13802, National Bureau of Economic Research, Inc.
  5. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
  6. David Folkerts-Landau & Peter M. Garber, 1992. "The European Central Bank: A Bank or a Monetary Policy Rule," NBER Working Papers 4016, National Bureau of Economic Research, Inc.

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