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Liquidity creation through banks and markets: Multiple insurance and limited market access

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  • von Thadden, Ernst-Ludwig

Abstract

The paper surveys theories of the intertemporal allocation of funds through demand deposits and anonymous markets, first separately and then in an integrated model. It reviews some work on the role of market frictions and asset characteristics, and suggests that the interplay between these two is crucial in explaining the observed coexistence of demand deposits and anonymous markets.

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File URL: http://www.sciencedirect.com/science/article/pii/S0014-2921(98)00122-6
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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 43 (1999)
Issue (Month): 4-6 (April)
Pages: 991-1006

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Handle: RePEc:eee:eecrev:v:43:y:1999:i:4-6:p:991-1006
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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Find related papers by JEL classification:
  • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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  1. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
  2. 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.
  3. 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.
  4. Waldo, Douglas G., 1985. "Bank runs, the deposit-currency ratio and the interest rate," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 269-277, May.
  5. Hellwig, Martin, 1994. "Liquidity provision, banking, and the allocation of interest rate risk," European Economic Review, Elsevier, vol. 38(7), pages 1363-1389, August.
  6. Diamond, Douglas W, 1997. "Liquidity, Banks, and Markets," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 928-56, October.
  7. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-92, June.
  8. von Thadden, Ernst-Ludwig, 1997. "The term-structure of investment and the banks' insurance function," European Economic Review, Elsevier, vol. 41(7), pages 1355-1374, July.
  9. Gorton, Gary & Pennacchi, George, 1990. " Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
  10. Qi, Jianping, 1994. "Bank Liquidity and Stability in an Overlapping Generations Model," Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 389-417.
  11. von Thadden, Ernst-Ludwig, 1998. "Intermediated versus Direct Investment: Optimal Liquidity Provision and Dynamic Incentive Compatibility," Journal of Financial Intermediation, Elsevier, vol. 7(2), pages 177-197, April.
  12. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
  13. Neil Wallace, 1988. "Another attempt to explain an illiquid banking system: the Diamond and Dybvig model with sequential service taken seriously," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-16.
  14. Joseph G. Haubrich & Robert G. King, 1984. "Banking and Insurance," NBER Working Papers 1312, National Bureau of Economic Research, Inc.
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