Abstract

http://ssrn.com/abstract=2471277
 
 

Citations (1)



 


 



Banks Are Where the Liquidity Is


Oliver Hart


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Luigi Zingales


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)

May 1, 2014

Chicago Booth Research Paper No. 14-27
Fama-Miller Working Paper

Abstract:     
What is so special about banks that their demise often triggers government intervention? In this paper we show that, even ignoring interconnectedness issues, the failure of a bank causes a larger welfare loss than the failure of other institutions. The reason is that agents in need of liquidity tend to concentrate their holdings in banks. Thus, a shock to banks disproportionately affects the agents who need liquidity the most, reducing aggregate demand and the level of economic activity. The optimal fiscal response to such a shock is to help people, not banks, and the size of this response should be larger if a bank, rather than a similarly-sized nonfinancial firm, fails.

Number of Pages in PDF File: 41

Keywords: liquidity, bailout, banking

JEL Classification: E41 G21, E51

working papers series





Download This Paper

Date posted: July 26, 2014  

Suggested Citation

Hart , Oliver and Zingales, Luigi, Banks Are Where the Liquidity Is (May 1, 2014). Chicago Booth Research Paper No. 14-27; Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2471277 or http://dx.doi.org/10.2139/ssrn.2471277

Contact Information

Oliver D. Hart
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-3461 (Phone)
617-495-7730 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Luigi Zingales (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
University of Chicago - Polsky Center for Entrepreneurship
Chicago, IL 60637
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Feedback to SSRN


Paper statistics
Abstract Views: 232
Downloads: 95
Download Rank: 140,403
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.313 seconds