IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Banks as Secret Keepers

Listed author(s):
  • Tri Vi Dang
  • Gary Gorton
  • Bengt Holmström
  • Guillermo Ordoñez
Registered author(s):

    Banks produce short-term debt for transactions and storing value. The value of this debt must not vary over time so agents can easily trade it at par like money. To produce money-like safe liquidity, banks keep detailed information about their loans secret, reducing liquidity if needed to prevent agents from producing costly private information about the banks' loans. Capital markets involve information revelation, so they produce risky liquidity. The trade-off between less safe liquidity and more risky liquidity determines which firms choose to fund projects through banks and which ones through capital markets.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://www.aeaweb.org/articles?id=10.1257/aer.20140782
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=aUCP4rQ5PvuKRhtHT4j-ZmCa7l1gF_gC
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=Y3nSUM4OoPuM5pcHoBFauD8hvv8k_x4N
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 107 (2017)
    Issue (Month): 4 (April)
    Pages: 1005-1029

    as
    in new window

    Handle: RePEc:aea:aecrev:v:107:y:2017:i:4:p:1005-29
    Note: DOI: 10.1257/aer.20140782
    Contact details of provider: Web page: https://www.aeaweb.org/aer/
    Email:


    More information through EDIRC

    Order Information: Web: https://www.aeaweb.org/subscribe.html

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Régis Breton, 2002. "Monitoring and the Acceptability of Bank Money," Post-Print halshs-00256937, HAL.
    2. Régis Breton, 2003. "A Smoke Screen Theory of Financial Intermediation," Post-Print halshs-00257188, HAL.
    3. Hirtle, Beverly, 2006. "Stock Market Reaction to Financial Statement Certification by Bank Holding Company CEOs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1263-1291, August.
    4. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit-Taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, 02.
    5. Bessler, Wolfgang & Nohel, Tom, 1996. "The stock-market reaction to dividend cuts and omissions by commercial banks," Journal of Banking & Finance, Elsevier, vol. 20(9), pages 1485-1508, November.
    6. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
    7. Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
    8. Bruce J. Summers, 1975. "Loan commitments to business in United States banking history," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 15-23.
    9. Régis Breton, 2002. "Monitoring and the Acceptability of Bank Money," Post-Print halshs-00256937, HAL.
    10. Jones, Jeffrey S. & Lee, Wayne Y. & Yeager, Timothy J., 2012. "Opaque banks, price discovery, and financial instability," Journal of Financial Intermediation, Elsevier, vol. 21(3), pages 383-408.
    11. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    12. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    13. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    14. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:107:y:2017:i:4:p:1005-29. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)

    or (Michael P. Albert)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.