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The Development of Opacity in U.S. Banking

  • Gary Gorton

An examination of U.S. banking history shows that economically efficient private bank money requires that information-revealing securities markets for bank liabilities be closed. That is, banks are optimally opaque, which is why they are regulated and examined. I show this by examining the transition from private bank notes, the predominant form of money before the U.S. Civil War, to demand deposits and show that markets endogenous closed. The opacity of bank money in the recent financial crisis is also briefly discussed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19540.

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Date of creation: Oct 2013
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Handle: RePEc:nbr:nberwo:19540
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  1. Gary Gorton, 1986. "Banking panics and business cycles," Working Papers 86-9, Federal Reserve Bank of Philadelphia.
  2. Tri Vi Dang & Gary Gorton & Beng Holmstrom & Guillermo Ordonez, 2014. "Banks as Secret Keepers," PIER Working Paper Archive 14-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
  4. Timberlake, Richard H, Jr, 1984. "The Central Banking Role of Clearinghouse Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 1-15, February.
  5. N/A, 1996. "Note:," Foreign Trade Review, Indian Institute of Foreign Trade, vol. 31(1-2), pages 1-1, January.
  6. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153, December.
  7. Gorton, Gary, 1999. "Pricing free bank notes," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 33-64, August.
  8. Gorton, Gary, 1996. "Reputation Formation in Early Bank Note Markets," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 346-97, April.
  9. Armantier, Olivier & Ghysels, Eric & Sarkar, Asani & Shrader, Jeffrey, 2011. "Discount window stigma during the 2007-2008 financial crisis," Staff Reports 483, Federal Reserve Bank of New York, revised 01 Aug 2015.
  10. Gorton, Gary, 1985. "Clearinghouses and the Origin of Central Banking in the United States," The Journal of Economic History, Cambridge University Press, vol. 45(02), pages 277-283, June.
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