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Money, credit, banking and payments system policy

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  • Marvin Goodfriend

Abstract

The evolution and structure of the payments system is explained by efficiency gains from substituting claims on particular institutions for commodity money. Information-intensive lending and payments services have been provided jointly by the same set of institutions, i.e., banks, because systems to evaluate credit, monitor and enforce loan agreements, and extend credit on short notice are productive in originating loans to nonfinancial customers and in managing lending to support an efficient provision of payments services. Monetary policy protects the payments system in a way that private arrangements could not. In contrast, Fed discount window lending matters because pledging rules favor the Fed over private lenders. Pre-Fed clearinghouses suggest that daylight overdrafts and Fed limits on direct access to the payments system are efficient in principle. Deposit insurance is viewed as one substitute for unrestricted branching as a means of diversifying nontraded loans. Pre-Fed clearinghouses suggest a tough exclusion principle to run deposit insurance more efficiently. Narrow banking is an unnecessarily costly alternative. ; A version of this work was published in the Federal Reserve Bank of Richmond's Economic Review, 1991 Vol. 77, No. 1

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  • Marvin Goodfriend, 1989. "Money, credit, banking and payments system policy," Working Paper 89-03, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:89-03
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    References listed on IDEAS

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    Cited by:

    1. Paul Hoffman & Anthony M. Santomero, 1998. "Problem Bank Resolution: Evaluating the Options," Center for Financial Institutions Working Papers 98-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Michael D. Bordo, 1990. "The lender of last resort : alternative views and historical experience," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 18-29.
    3. Bossone, Biagio, 2000. "What makes banks special ? a study of banking, finance, and economic development," Policy Research Working Paper Series 2408, The World Bank.
    4. Catharine Lemieux, 2003. "Network vulnerabilities and risks in the retail payment system," Emerging Issues, Federal Reserve Bank of Chicago.
    5. Kahn, Charles M & McAndrews, James & Roberds, William, 2003. " Settlement Risk under Gross and Net Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 591-608, August.
    6. Michael D. Bordo & Finn E. Kydland, 1990. "The Gold Standard as a Rule," NBER Working Papers 3367, National Bureau of Economic Research, Inc.
    7. Anthony M. Santomero, 1996. "The Regulatory and Public Policy Agenda for Effective Intermediation in Post Socialist Economies," Center for Financial Institutions Working Papers 96-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
    8. Richard J. Herring & Anthony M. Santomero, 2000. "What Is Optimal Financial Regulation?," Center for Financial Institutions Working Papers 00-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
    9. Peter Garber & Steven Weisbrod, 1990. "Banks in the Market for Liquidity," NBER Working Papers 3381, National Bureau of Economic Research, Inc.
    10. Anthony M. Santomero, 1997. "Deposit Insurance: Do We Need It and Why?," Center for Financial Institutions Working Papers 97-35, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. Lawrence J. Radecki, 1999. "Banks' payments-driven revenues," Staff Reports 62, Federal Reserve Bank of New York.
    12. Werner, Richard A., 2014. "Can banks individually create money out of nothing? — The theories and the empirical evidence," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 1-19.
    13. John A. Weinberg, 1994. "Selling Federal Reserve payment services: one price fits all?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-24.

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    Keywords

    Money ; Credit;

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