Banks as Secret Keepers / Tri Vi Dang, Gary Gorton, Bengt Holmström, Guillermo Ordonez.

Format:

Book

Author/Creator:

Dang, Tri Vi.

Contributor:

National Bureau of Economic Research.

Gorton, Gary.

Holmström, Bengt.

Ordonez, Guillermo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20255.

NBER working paper series no. w20255

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires that information about the backing assets - loans - not be revealed, so that bank money does not fluctuate in value, reducing the efficiency of trade. This need for opacity conflicts with the production of information about investment projects, needed for allocative efficiency. Intermediaries exist to hide such information, so banks select portfolios of information-insensitive assets. For the economy as a whole, firms endogenously separate into bank finance and capital market/stock market finance depending on the cost of producing information about their projects.

Notes:

Print version record

June 2014.