The Disappearance of Deposit Banks: An Explanation

24 Pages Posted: 22 Aug 2013

See all articles by Carolyn Sissoko

Carolyn Sissoko

University of the West of England (UWE)

Date Written: June 5, 2007

Abstract

This paper asks why deposit banks thrived in the late Middle Ages, but had virtually disappeared by 1600 and studies banking in Venice in order to answer the question. A model is developed that shows that a partial reserve banking system is an efficient means of allocating investment funds only if the returns from long-term investment are sufficient both to compensate the banker for the costs of running a bank and to offer depositors a return over what they can receive through market allocation. Thus the collapse of deposit banking in Venice can be explained by the fact that in the 16th c. the costs of operating deposit banks remained high, while the returns from long term investment declined.

Suggested Citation

Sissoko, Carolyn, The Disappearance of Deposit Banks: An Explanation (June 5, 2007). Available at SSRN: https://ssrn.com/abstract=2314507 or http://dx.doi.org/10.2139/ssrn.2314507

Carolyn Sissoko (Contact Author)

University of the West of England (UWE) ( email )

Blackberry Hill Bristol
Bristol, Avon BS16 1QY
United Kingdom

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