Working Paper
Banking and commerce: a liquidity approach
Abstract: This paper looks at the advantages and disadvantages of mixing banking and commerce, using the \"liquidity\" approach to financial intermediation. Adding a commercial firm makes it easier for a bank to dispose of assets seized in a loan default. This \"internal market\" increases the liquidity of such assets and improves the bank's ability to perform financial intermediation. More generally, owning a commercial firm may act either as a substitute or a complement to commercial lending. In some cases, a bank will voluntarily refrain from making loans, choosing to become a nonbank bank in an unregulated environment.
Keywords: Nonbank financial institutions; Bank liquidity;
https://doi.org/10.26509/frbc-wp-199907
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Bibliographic Information
Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers (Old Series)
Publication Date: 1999
Number: 9907