EconPapers    
Economics at your fingertips  
 

Banking and Trading

Arnoud Boot () and Lev Ratnovski ()

Review of Finance, 2016, vol. 20, issue 6, 2219-2246

Abstract: We study the interaction between relationship banking and short-term arm’s length activities of banks, called trading. We show that a bank can use the franchise value of its relationships to expand the scale of trading, but may allocate too much capital to trading ex post, compromising its ability to build relationships ex ante. This effect is reinforced when trading is used for risk shifting. Overall, combining relationship banking and trading offers benefits under small-scale trading, but distortions may dominate when trading is unbridled. This suggests that trading by banks, while benign historically, might be distortive with deeper financial markets.

JEL-codes: G21 G24 G28 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfv069 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Banking and Trading (2012) Downloads
Working Paper: Banking and Trading (2012) Downloads
Working Paper: Banking and Trading (2012) Downloads
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:oup:revfin:v:20:y:2016:i:6:p:2219-2246.

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Review of Finance is currently edited by Josef ZechnerEditor-Name: Marco Pagano

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2019-12-13
Handle: RePEc:oup:revfin:v:20:y:2016:i:6:p:2219-2246.