Financial intermediation, monitoring, and liquidity
This paper constructs a theoretical model that integrates the two objectives of capital adequacy requirements and deposit insurance, namely avoiding banking crises and protecting small depositors. The paper also addresses the related question: why do banks fund loans with both equity and demand deposits? The model determines the optimal bank capital structure. In comparison with a Diamond-Dybvig bank which funds loans with demand deposits only, a capitalized financial intermediary provides liquidity to its depositors at a lower cost, and channels more funds to the most efficient investments. The model identifies the sources of market failure that may justify banking regulation. Copyright 2008 , Oxford University Press.
Year of publication: |
2008
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Authors: | Marini, François |
Published in: |
Oxford Economic Papers. - Oxford University Press. - Vol. 60.2008, 3, p. 440-461
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Publisher: |
Oxford University Press |
Saved in:
Online Resource
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