Warehouse Banking

57 Pages Posted: 19 Jun 2017

See all articles by Jason Donaldson

Jason Donaldson

Washington University in St. Louis

Giorgia Piacentino

Columbia University

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Date Written: May 15, 2017

Abstract

We develop a theory of banking that explains why banks started out as commodities warehouses. We show that warehouses become banks because their superior storage technology allows them to enforce the repayment of loans most effectively. Further, interbank markets emerge endogenously to support this enforcement mechanism. Even though warehouses store deposits of real goods, they make loans by writing new “fake” warehouse receipts, rather than by taking deposits out of storage. Our theory helps to explain how modern banks create funding liquidity and why they combine warehousing (custody and deposit-taking), lending, and private money creation within the same institutions. It also casts light on a number of contemporary regulatory policies.

Keywords: warehousing, liquidity creation, bank capital, bank existence

JEL Classification: G21, G28, N20

Suggested Citation

Donaldson, Jason and Piacentino, Giorgia and Thakor, Anjan V., Warehouse Banking (May 15, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2987199

Jason Donaldson

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Giorgia Piacentino

Columbia University ( email )

New York

Anjan V. Thakor (Contact Author)

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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