Bank Funding Modes

Stuart I. Greenbaum and Anjan V. Thakor ()
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Stuart I. Greenbaum: Washington University in St. Louis

Finance from EconWPA

Abstract: We examine a bank's choice of whether to fund the loans it originates by emitting deposits or to sell the loans to investors. With common knowledge of loan quality and laissez faire banking, we find that the choice is irrelevant. With asymmetric information but without government intervention, we find that better quality assets will be sold (securitized) and poorer quality assets will be funded with deposits. Public regulation can influence the bank's choice; subsidies can cause a bank to favor deposit funding, but mutual funds and third-party insurers may mitigate the effects of governmental subsidies.

JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-11-30
Note: Type of Document - pdf; pages: 23
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0411052

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