Warehouse banking

Jason Roderick Donaldson, Giorgia Piacentino and Anjan Thakor ()

Journal of Financial Economics, 2018, vol. 129, issue 2, 250-267

Abstract: We develop a theory of banking that explains why banks started out as commodities warehouses. We show that warehouses become banks because their superior storage technology allows them to enforce the repayment of loans most effectively. Further, interbank markets emerge endogenously to support this enforcement mechanism. Even though warehouses store deposits of real goods, they make loans by writing new fake warehouse receipts, rather than by taking deposits out of storage. Our theory helps to explain how modern banks create funding liquidity and why they combine warehousing (custody and deposit-taking), lending, and private money creation within the same institutions. It also casts light on a number of contemporary regulatory policies.

Keywords: Banking; Private money; Financial history (search for similar items in EconPapers)
JEL-codes: G21 G28 N20 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X18301107
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Warehouse Banking (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:129:y:2018:i:2:p:250-267

DOI: 10.1016/j.jfineco.2018.04.011

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().