Piggy Banks: Financial Intermediaries as a Commitment to Save

Donald Morgan and Kathrine Samolyk

Journal of Financial Services Research, 2014, vol. 45, issue 3, 286 pages

Abstract: Banks and other intermediaries may help savers commit to investment plans that savers could not stick to if they held assets directly. We illustrate this commitment function using a version of the Diamond and Dybvig ( 1983 ) model where savers’ short-run liquidity needs are correlated with shocks to investment opportunities. The investment securities are all freely tradeable, yet savers still do better if they delegate their investment decisions to an intermediary that overrides the savers’ liquidity demands when investment opportunities warrant. Bank CDs, insurance annuities, pensions, and even social security, by locking funds out of reach, may all constitute real world examples of this commitment role of financial intermediaries. Copyright Springer Science+Business Media New York 2014

Keywords: Financial intermediaries; Banks; Commitment mechanisms; Saving; G21; G23; E21 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Piggy banks: financial intermediaries as a commitment to save (1998)
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DOI: 10.1007/s10693-013-0166-2

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