Banks increase welfare
AbstractThis paper examines the relative degrees of risk sharing provided by demand deposit contracts and equity contracts. It is shown that in a framework in which individuals have smooth preferences and there exists some type of aggregate uncertainty (interest rate risk), the allocations obtained with a financial intermediary allow in general for greater risk sharing than those achieved in an equity economy. However, the interest rate is essential in order to determine the superiority of demand deposit contracts over equity contracts. The results of the paper contradict the ones obtained by Jacklin  and Hellwig , where demand deposit and equity contracts are always equivalent risk sharing instruments.
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Bibliographic InfoPaper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/7603.
Length: 235 p.
Date of creation: Dec 2001
Date of revision:
Publication status: Published in Financial Markets, Institutions & Instruments (2001-12) v.Vol. 10, p.203-233
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Web page: http://www.uc3m.es
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- Dwyer Jr., Gerald P. & Samartín, Margarita, 2009.
"Why do banks promise to pay par on demand?,"
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- Samartín Sáenz, Margarita & Dwyer, Gerald P., 2009. "Why do banks promise to pay par on demand?," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7581, Universidad Carlos III de Madrid.
- Margarita SamartÃn & Gerald Dwyer, 2004. "Why do banks promise to pay par on demand?," 2004 Meeting Papers 372, Society for Economic Dynamics.
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- Gerald P. Dwyer, Jr. & Margarita Samartín, 2006. "Why do banks promise to pay par on demand?," Working Paper 2006-26, Federal Reserve Bank of Atlanta.
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