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Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit‐taking

Anil K. Kashyap, Raghuram Rajan and Jeremy C. Stein

Journal of Finance, 2002, vol. 57, issue 1, 33-73

Abstract: What ties together the traditional commercial banking activities of deposit‐taking and lending? We argue that since banks often lend via commitments, their lending and deposit‐taking may be two manifestations of one primitive function: the provision of liquidity on demand. There will be synergies between the two activities to the extent that both require banks to hold large balances of liquid assets: If deposit withdrawals and commitment takedowns are imperfectly correlated, the two activities can share the costs of the liquid‐asset stockpile. We develop this idea with a simple model, and use a variety of data to test the model empirically.

Date: 2002
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Citations: View citations in EconPapers (628)

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https://doi.org/10.1111/1540-6261.00415

Related works:
Working Paper: Banks as Liquidity Providers: An Explanation for the Co-Existence of Lending and Deposit-Taking (1999) Downloads
Working Paper: Banks as liquidity providers: an explanation for the co-existence of lending and deposit-taking (1998)
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