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Banking and commerce: a liquidity approach

Author

Listed:
  • João A. C. Santos

    (Federal Reserve Bank of New York)

  • Joseph G. Haubrich

    (Federal Reserve Bank of Cleveland - Research Department)

Abstract

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.

Suggested Citation

  • João A. C. Santos & Joseph G. Haubrich, 1999. "Banking and commerce: a liquidity approach," BIS Working Papers 78, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:78
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    References listed on IDEAS

    as
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    9. 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, February.
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    11. Santos, Joao A. C., 1999. "Bank capital and equity investment regulations," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1095-1120, July.
    12. 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.
    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.
    14. Stanley D. Longhofer & Joao A.C. Santos, 2003. "The Paradox of Priority," Financial Management, Financial Management Association, vol. 32(1), Spring.
    15. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
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    17. 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.
    18. Randall J. Pozdena, 1991. "Why banks need commerce powers," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 18-31.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    2. Delis, Manthos D & Gaganis, Chrysovalantis & Pasiouras, Fotios, 2009. "Bank liquidity and the board of directors," MPRA Paper 18872, University Library of Munich, Germany.
    3. Santos, Joao A.C. & Rumble, Adrienne S., 2006. "The American keiretsu and universal banks: Investing, voting and sitting on nonfinancials' corporate boards," Journal of Financial Economics, Elsevier, vol. 80(2), pages 419-454, May.
    4. Alexander Raskovich, 2008. "Should Banking Be Kept Separate from Commerce," EAG Competition Advocacy Papers 200809, Department of Justice, Antitrust Division.
    5. Konishi, Masaru, 2012. "Equity Investment Regulation and Bank Risk: Evidence from Japanese Commercial Banks," Working Paper Series G-1-1, Center for Financial Research, Graduate School of Commerce and Management, Hitotsubashi University.
    6. Alexander Raskovich, 2008. "Should Banking Be Kept Separate from Commerce," EAG Discussions Papers 200809, Department of Justice, Antitrust Division.
    7. 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.
    8. Arie L Melnik & Steven E. Plaut, 2007. "The Institutional Structure and the Cost of Bank Loans: an International Comparison," ICER Working Papers 22-2007, ICER - International Centre for Economic Research.
    9. repec:hit:hcfrwp:1 is not listed on IDEAS

    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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