Bank Risk and the Declining Franchise Value of the Banking Systems in the United States and Japan

58 Pages Posted: 15 Feb 2006

See all articles by Steven R. Weisbrod

Steven R. Weisbrod

Consultant; Inter-American Development Bank (IDB)

Howard Lee

affiliation not provided to SSRN

Liliana Rojas-Suarez

Center for Global Development

Date Written: June 1992

Abstract

This paper associates both the increase in risk taken by wholesale banks in the United States and the decline in earnings at wholesale banks in Japan with a reduction in the franchise value of wholesale banking. In contrast with the conventional view that relates the franchise value of banking to informational advantages over other lenders, this paper argues that banks` franchise value originates in their provision of liquidity and payments services to their customers. Therefore, the decline in corporate demand for bank liquidity is identified as a major factor explaining the fall of the franchise value. The paper also analyzes recent proposals for banking reform and assesses their relevance for dealing with the problems of wholesale banks.

JEL Classification: G18, G21

Suggested Citation

Weisbrod, Steven R. and Lee, Howard and Rojas-Suarez, Liliana, Bank Risk and the Declining Franchise Value of the Banking Systems in the United States and Japan (June 1992). IMF Working Paper No. 92/45, Available at SSRN: https://ssrn.com/abstract=884791

Inter-American Development Bank (IDB)

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Washington, DC 20577
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Howard Lee

affiliation not provided to SSRN

No Address Available

Liliana Rojas-Suarez

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

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