Bank Funding Modes
AbstractWe examine a bank's choice of whether to fund the loans it originates by emitting deposits or to sell the loans to investors. With common knowledge of loan quality and laissez faire banking, we find that the choice is irrelevant. With asymmetric information but without government intervention, we find that better quality assets will be sold (securitized) and poorer quality assets will be funded with deposits. Public regulation can influence the bank's choice; subsidies can cause a bank to favor deposit funding, but mutual funds and third-party insurers may mitigate the effects of governmental subsidies.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0411052.
Length: 23 pages
Date of creation: 30 Nov 2004
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- G - Financial Economics
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