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Liquidity, Banks and Markets

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  • DOUGLAS W. DIAMOND

Abstract

This paper examines the roles of markets and banks when both are active, characterizing the effects of financial market development on the structure and market share of banks. Banks lower the cost of giving investors rapid access to their capital and improve the liquidity of markets by diverting demand for liquidity from markets. Increased participation in markets causes the banking sector to shrink, primarily through reduced holdings of long-term assets. In addition, increased participation leads to longer-maturity real and financial assets and a smaller gap between the maturity of financial and real assets. Copyright 1997 by the University of Chicago.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Douglas W. Diamond, "undated". "Liquidity, Banks and Markets," CRSP working papers 326, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    • Handle: RePEc:wop:chispw:326
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