What broad banks do, and markets don't: Cross-subsidization
We show that interbank markets are a poor substitute for "broad" banks that operate across regions or sectors. In the presence of regional or sectoral asset and liquidity shocks, interbank markets can distribute liquidity efficiently, but fail to respond efficiently to asset shocks. Broad banks can condition on the joint distribution of both shocks and, hence, achieve an efficient internal allocation of capital. This allocation involves the cross-subsidization of loans across regions or sectors. Compared to regional banks that are linked through well-functioning interbank markets, broad banks lead to higher levels of aggregate investment, higher output, and less fluctuations within regions. However, broad banks generate endogenously aggregate uncertainty.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Donald Morgan & Bertrand Rime & Philip Strahan, 2003.
"Bank Integration and State Business Cycles,"
NBER Working Papers
9704, National Bureau of Economic Research, Inc.
- Kocherlakota Narayana R, 2001.
"Risky Collateral and Deposit Insurance,"
The B.E. Journal of Macroeconomics,
De Gruyter, vol. 1(1), pages 1-20, February.
- Franklin Allen & Douglas Gale, 1995.
"Financial Markets, Intermediaries, and Intertemporal Smoothing,"
Center for Financial Institutions Working Papers
95-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Allen, Franklin & Gale, Douglas, 1997. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 523-546, June.
- Franklin Allen & Douglas Gale, 1996. "Financial Markets, Intermediaries and Intertemporal Smoothing," Center for Financial Institutions Working Papers 96-33, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Franklin Allen & Douglas Gale, 1995. "Financial markets, intermediaries, and intertemporal smoothing," Working Papers 95-4, Federal Reserve Bank of Philadelphia.
- Sevestre, Patrick & Martinez-Pages, Jorge & Gambacorta, Leonardo & Ehrmann, Michael & Worms, Andreas, 2001.
"Financial systems and the role of banks in monetary policy transmission in the euro area,"
Discussion Paper Series 1: Economic Studies
2001,18, Deutsche Bundesbank, Research Centre.
- Ehrmann, Michael & Gambacorta, Leonardo & Martinéz Pagés, Jorge & Sevestre, Patrick & Worms, Andreas, 2001. "Financial systems and the role of banks in monetary policy transmission in the euro area," Working Paper Series 0105, European Central Bank.
- Michael Ehrmann & Leonardo Gambacorta & Jorge Martï¿½nez-Pagï¿½s & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
- Michael Ehrmann & Leonardo Gambacorta & Jorge Martínez-Pagés & Patrick Sevestre & Andreas Worms, 2001. "Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area," Working Papers 0118, Banco de España;Working Papers Homepage.
- Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-161, May.
- Donald P. Morgan & Bertrand Rime & Philip E. Strahan, 2004. "Bank Integration and State Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1555-1584.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Jeremy C. Stein, 1995.
"Internal Capital Markets and the Competition for Corporate Resources,"
NBER Working Papers
5101, National Bureau of Economic Research, Inc.
- Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
- Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sørensen, 2006.
"FU.S. banking deregulation, small businesses, and interstate insurance of personal income,"
2006/09, Norges Bank.
- Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sørensen, 2007. "U.S. Banking Deregulation, Small Businesses, and Interstate Insurance of Personal Income," Journal of Finance, American Finance Association, vol. 62(6), pages 2763-2801, December.
- Bent E. Sørensen & Yuliya Demyanyk & Charlotte Ostergaard, 2005. "U.S. Banking Deregulation, Small Businesses,and Interstate Insurance of Personal Income," Working Papers 2005-02, Department of Economics, University of Houston.
- Demyanyk, Yuliya & Ostergaard, Charlotte & Sørensen, Bent E, 2006. "US Banking Deregulation, Small Businesses and Interstate Insurance of Personal Income," CEPR Discussion Papers 5863, C.E.P.R. Discussion Papers.
- Ralph de Haas & Iman van Lelyveld, 2003.
"Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis,"
DNB Staff Reports (discontinued)
109, Netherlands Central Bank.
- de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1927-1952, July.
- Bhattacharya, Sudipto & Fulghieri, Paolo, 1994. "Uncertain liquidity and interbank contracting," Economics Letters, Elsevier, vol. 44(3), pages 287-294.
- George Clarke & Robert Cull & Maria Soledad Martinez Peria & Susana M. S·nchez, 2003. "Foreign Bank Entry: Experience, Implications for Developing Economies, and Agenda for Further Research," World Bank Research Observer, World Bank Group, vol. 18(1), pages 25-59.
- Adam B. Ashcraft, 2001.
"New evidence on the lending channel,"
136, Federal Reserve Bank of New York.
- Clarke, Margaret Z, 2004. "Geographic Deregulation of Banking and Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 929-942, October.
- Houston, Joel & James, Christopher & Marcus, David, 1997. "Capital market frictions and the role of internal capital markets in banking," Journal of Financial Economics, Elsevier, vol. 46(2), pages 135-164, November.
- Thorsten V. Koppl & James MacGee, 2001. "Limited enforcement and efficient interbank arrangements," Working Papers 608, Federal Reserve Bank of Minneapolis.
- Jeffrey Lacker, 2001.
"Collateralized Debt as the Optimal Contract,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 842-859, October.
- Jeffrey Lacker, 2001. "Online Appendix to Collateralized Debt as the Optimal Contract," Technical Appendices lacker01, Review of Economic Dynamics.
- Jeffrey M. Lacker, 1998. "Collateralized debt as the optimal contract," Working Paper 98-04, Federal Reserve Bank of Richmond.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
- Houston, Joel F. & James, Christopher, 1998. "Do bank internal capital markets promote lending?," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 899-918, August.
- Murillo Campello, 2002. "Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy," Journal of Finance, American Finance Association, vol. 57(6), pages 2773-2805, December.
- Gorton, Gary, 1985. "Clearinghouses and the Origin of Central Banking in the United States," The Journal of Economic History, Cambridge University Press, vol. 45(02), pages 277-283, June.
- Vojislav Maksimovic & Gordon Phillips, 2002. "Do Conglomerate Firms Allocate Resources Inefficiently Across Industries? Theory and Evidence," Journal of Finance, American Finance Association, vol. 57(2), pages 721-767, 04.
- V. V. Chari, 1989. "Banking without deposit insurance or bank panics: lessons from a model of the U.S. national banking system," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-19.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:53:y:2009:i:2:p:222-236. 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: (Dana Niculescu)
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.