Money, Credit, Banking, and Payments System Policy

FRB Richmond Working Paper No. 89-3

17 Pages Posted: 2 Nov 2012

See all articles by Marvin Goodfriend

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 1989

Abstract

The evolution and structure of the payments system is explained by efficiency gains from substituting claims on particular institutions for commodity money. Information-intensive lending and payments services have been provided jointly by the same set of institutions, i.e., banks, because systems to evaluate credit, monitor and enforce loan agreements, and extend credit on short notice are productive in originating loans to nonfinancial customers and in managing lending to support an efficient provision of payments services. Monetary policy protects the payments system in a way that private arrangements could not. In contrast, Fed discount window lending matters because pledging rules favor the Fed over private lenders. Pre-Fed clearinghouses suggest that daylight overdrafts and Fed limits on direct access to the payments system are efficient in principle. Deposit insurance is viewed as one substitute for unrestricted branching as a means of diversifying nontraded loans. Pre-Fed clearinghouses suggest a tough exclusion principle to run deposit insurance more efficiently. Narrow banking is an unnecessarily costly alternative.

Suggested Citation

Goodfriend, Marvin, Money, Credit, Banking, and Payments System Policy (August 1, 1989). FRB Richmond Working Paper No. 89-3. Available at SSRN: https://ssrn.com/abstract=2123526 or http://dx.doi.org/10.2139/ssrn.2123526

Marvin Goodfriend (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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