Liquidity Creation through Banks and Markets: A Theoretical Perspective on Securitization

Ernst-Ludwig von Thadden

Economic Notes, 2000, vol. 29, issue 3, 375-391

Abstract: type="main" xml:lang="en">

Securitization is a process that transforms some traditional non-traded banking assets into marketable securities. To evaluate this process, this paper surveys theories of the intertemporal allocation of funds through demand deposits and anonymous markets, first separately and then in an integrated model. It reviews some work on the role of market frictions and asset characteristics, and concludes that the interplay between these two is crucial in explaining the observed co-existence of demand deposits and anonymous markets. This suggests that securitization is an opportunity, rather than a threat, to banks.

(J.E.L.: D50, G21)

Date: 2000
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