Banking and Commerce: A Liquidity Approach
34 Pages Posted: 13 Dec 2005
Date Written: April 2000
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.
Keywords: Banking, commerce, liquidity, synnergies, economies of scope
JEL Classification: G21, G28, G34
Suggested Citation: Suggested Citation