Banks as Secret Keepers
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aer.20140782.pdf
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702.23 KB
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Author(s)
Dang, Tri Vi
Gorton, Gary
Ordoñez, Guillermo
Holmstrom, Bengt
Date Issued
April 2017
Journal
American Economic Review
Publisher
American Economic Association
Citation
Dang, Tri Vi, Gary Gorton, Bengt Holmström, and Guillermo Ordoñez. “Banks as Secret Keepers.” American Economic Review 107, no. 4 (April 2017): 1005–1029. © 2017 American Economic Association
Version
Final published version
Abstract
Banks produce short-term debt for transactions and storing value. The value of this debt must not vary over time so agents can easily trade it at par like money. To produce money-like safe liquidity, banks keep detailed information about their loans secret, reducing liquidity if needed to prevent agents from producing costly private information about the banks' loans. Capital markets involve information revelation, so they produce risky liquidity. The trade-off between less safe liquidity and more risky liquidity determines which firms choose to fund projects through banks and which ones through capital markets.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Sloan School of Management
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.20140782
