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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. Bringing a non-financial firm into a banking conglomerate may be advantageous because it may make it easier for the bank to dispose of assets seized in a loan default. The internal market formed inside the banking and commerce conglomerate increases the liquidity of such assets and improves the bank's ability to perform financial intermediation. More generally, owning a non-financial 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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