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Banking and Commerce: A Liquidity Approach

Joseph G. Haubrich
Federal Reserve Bank of Cleveland

João A. C. Santos
Federal Reserve Bank of New York

April 2000

BIS Working Paper No. 78

Abstract:
This paper looks at the advantages and disadvantages of mixing banking and commerce, using the "liquidity" approach to financial intermediation. Bringing a nonfinancial firm into a banking conglomerate may be advantageous because it may make it easier for the bank to dispose of assets seized in a loan default. The internal market formed inside the banking and commerce conglomerate increases the liquidity of such assets and improves the bank's ability to perform financial intermediation. More generally, owning a nonfinancial firm may act either as a substitute or a complement to commercial lending. In some cases, a bank will voluntarily refrain from making loans, choosing to become a non-bank bank in an unregulated environment.

Keywords: Banking, commerce, liquidity, synnergies, economies of scope

JEL Classifications: G21, G28, G34

Working Paper Series

Date posted: September 01, 2000 ; Last revised: August 16, 2006

Suggested Citation

Haubrich, Joseph G. and Santos, João A. C., Banking and Commerce: A Liquidity Approach (April 2000). BIS Working Paper No. 78. Available at SSRN: http://ssrn.com/abstract=237170 or doi:10.2139/ssrn.237170

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Contact Information

Joseph G. Haubrich (Contact Author) Federal Reserve Bank of Cleveland ( email ) East 6th & Superior Cleveland, OH 44101-1387 United States 216-579-2802 (Phone) 216-579-3050 (Fax)
João A.C. Santos Federal Reserve Bank of New York ( email ) 33 Liberty Street New York, NY 10045 United States 212-720-5583 (Phone) 212-720-8363 (Fax) HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML