Abstract

http://ssrn.com/abstract=253849
 
 

References (49)



 
 

Citations (31)



 


 



Liquidity Provision, Bank Capital, and the Macroeconomy


Gary B. Gorton


Yale School of Management; National Bureau of Economic Research (NBER)

Andrew Winton


University of Minnesota - Twin Cities - Carlson School of Management

January 25, 2014


Abstract:     
We provide a theory of bank capital to evaluate the policy of using capital requirements to ensure the “safety and soundness” of the banking system. Bank capital is beneficial because it reduces the chance of privately and socially costly bank failure. But it is both privately and socially costly because a system-wide increase in bank capital reduces the aggregate amount of bank deposits, which are an efficient medium of exchange. Binding capital requirements may cause banks to exit the industry. Increased capital requirements may also increase bank asset risk, leading to no decrease in the banking system’s fragility.

Number of Pages in PDF File: 48

Keywords: Bank Capital, Liquidity

JEL Classification: G21, G28

working papers series


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Date posted: December 13, 2000 ; Last revised: February 3, 2014

Suggested Citation

Gorton, Gary B. and Winton, Andrew, Liquidity Provision, Bank Capital, and the Macroeconomy (January 25, 2014). Available at SSRN: http://ssrn.com/abstract=253849 or http://dx.doi.org/10.2139/ssrn.253849

Contact Information

Gary B. Gorton (Contact Author)
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203 432-8931 (Fax)
HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Andrew Winton
University of Minnesota - Twin Cities - Carlson School of Management ( email )
321 19th Avenue South
Department of Finance
Minneapolis, MN 55455
United States
612-624-0589 (Phone)
612-626-1335 (Fax)
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