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Banking and commerce: A liquidity approach

  • Haubrich, Joseph G.
  • Santos, Joao A. C.

This paper looks at the advantages and disadvantages of mixing banking and commerce, using the "liquidity" approach to financial intermediation. Adding a commercial firm makes it easier for a bank to dispose of assets seized in a loan default. This 'internal market' increases the liquidity of such assets and improves the bank's ability to perform financial intermediation. More generally, owning a commercial firm may act either as a substitute or a complement to commercial lending. In some cases, a bank will voluntarily refrain from making loans, choosing to become a non-bank bank in an unregulated environment.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 29 (2005)
Issue (Month): 2 (February)
Pages: 271-294

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Handle: RePEc:eee:jbfina:v:29:y:2005:i:2:p:271-294
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Hart, O. & Moore, J., 1991. "A Theory of Debt Based on the Inalienability of Human Capital," Working papers 592, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox Of Liquidity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 733-771, August.
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  8. repec:cup:cbooks:9780521038218 is not listed on IDEAS
  9. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  10. 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.
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  12. Randall J. Pozdena, 1991. "Why banks need commerce powers," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 18-31.
  13. Robert H. Gertner & David S. Scharfstein & Jeremy C. Stein, 1994. "Internal versus External Capital Markets," NBER Working Papers 4776, National Bureau of Economic Research, Inc.
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  16. João A.C. Santos, 1998. "Banking and commerce: how does the United States compare to other countries?," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 14-26.
  17. Stanley D. Longhofer & Joao A.C. Santos, 2003. "The Paradox of Priority," Financial Management, Financial Management Association, vol. 32(1), Spring.
  18. Kenneth Spong, 2000. "Banking regulation : its purposes, implementation, and effects," Monograph, Federal Reserve Bank of Kansas City, number 2000bria.
  19. Sun Bae Kim, 1992. "Corporate financing through a shareholder bank: lessons from Japan," Pacific Basin Working Paper Series 92-03, Federal Reserve Bank of San Francisco.
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