Banking and Commerce: A Liquidity Approach
Joseph G. Haubrich
Federal Reserve Bank of Cleveland
João A. C. Santos
Federal Reserve Bank of New York
BIS Working Paper No. 78
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.
Number of Pages in PDF File: 34
Keywords: Banking, commerce, liquidity, synnergies, economies of scope
JEL Classification: G21, G28, G34
Date posted: December 13, 2005
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