Financial intermediation, monitoring, and liquidity
Marini, François (2008), Financial intermediation, monitoring, and liquidity, Oxford Economic Papers, 60, 3, p. 440–461. http://dx.doi.org/10.1093/oep/gpm041
TypeArticle accepté pour publication ou publié
Journal nameOxford Economic Papers
Oxford university press
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Abstract (EN)This paper constructs a theoretical model that integrates the two objectives of capital adequacy requirements and deposit insurance, namely avoiding banking crises and protecting small depositors. The paper also addresses the related question : why do banks fund loans with both equity and demand deposits ? The model determines the optimal bank capital structure. In comparison with a Diamond-Dybvig bank which funds loans with demand deposits only, a capitalized financial intermediary provides liquidity to its depositors at a lower cost, and channels more funds to the most efficient investments. The model identifies the sources of market failure that may justify banking regulation.
Subjects / KeywordsBank; Banking; Banking Crisis; Deposit; Deposit Insurance; Financial Intermediary; Intermediation; Regulation
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