Abstract

https://ssrn.com/abstract=253849
 
 

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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

September 23, 2016


Abstract:     
New bank equity must come from somewhere. In general equilibrium, raising bank capital requirements means either that banks produce less short-term debt (as debt holders must become shareholders), or short-term debt is not reduced and the banking system acquires nonbank equity (as the shareholders in nonbanks become shareholders in banks). The welfare effects involve a trade-off because bank debt is special as it used for transactions purposes, but more bank capital can reduce the chance of bank failure (producing welfare losses).

Number of Pages in PDF File: 63

Keywords: Bank Capital, Liquidity

JEL Classification: G21, G28


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Date posted: December 13, 2000 ; Last revised: September 24, 2016

Suggested Citation

Gorton, Gary B. and Winton, Andrew, Liquidity Provision, Bank Capital, and the Macroeconomy (September 23, 2016). Available at SSRN: https://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 )
165 Whitney Ave
P.O. Box 208200
New haven, CT 06511
United States
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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