Secret Keeping Intermediaries
Information is critical to reallocate funds efficiently. However, this same information may also hinder liquidity by raising the concerns of adverse selection. When lending and liquidity provision are separated activities, individuals that produce information to lend do not internalize its negative externality on the liquidity properties of those loans. Financial intermediaries can eliminate this effect by hiding the information. If this is not possible, still intermediaries can internalize the negative effects of information by weighting in the benefits of liquidity.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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