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Banking and commerce: a liquidity approach

Author

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

Abstract

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 nonbank bank in an unregulated environment.

Suggested Citation

  • Joseph G. Haubrich & Joao A. C. Santos, 1999. "Banking and commerce: a liquidity approach," Working Papers (Old Series) 9907, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:9907
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    References listed on IDEAS

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    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, Hitotsubashi University Center for Financial Research.
    6. Alexander Raskovich, 2008. "Should Banking Be Kept Separate from Commerce," EAG Discussions Papers 200809, Department of Justice, Antitrust Division.
    7. Joao A. C. Santos, 1998. "Banking and commerce: how does the United States compare to other countries?," Economic Review, Federal Reserve Bank of Cleveland, vol. 34(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. Barth, James R. & Sun, Yanfei, 2020. "Industrial banks: Challenging the traditional separation of commerce and banking," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 220-249.
    10. repec:hit:hcfrwp:1 is not listed on IDEAS

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    More about this item

    Keywords

    Nonbank financial institutions; Bank liquidity;

    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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