Private money and banking regulation

Cyril Monnet and Daniel Sanches

No 15-19, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We show that a competitive banking system is inconsistent with an optimum quantity of private money. Because bankers cannot commit to their promises and the composition of their assets is not publicly observable, a positive franchise value is required to induce the full convertibility of bank liabilities. Under perfect competition, a positive franchise value can be obtained only if the return on bank liabilities is sufficiently low, which imposes a cost on those who hold these liabilities for transaction purposes. If the banking system is monopolistic, then an efficient allocation is incentive-feasible. In this case, the members of the banking system obtain a higher return on assets, making it feasible to pay a sufficiently high return on bank liabilities. Finally, we argue that the regulation of the banking system is required to obtain efficiency.

Keywords: Private money; Banking structure; Regulation (search for similar items in EconPapers)
JEL-codes: E42 G21 G28 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-04-09
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2015/wp15-19.pdf (application/pdf)

Related works:
Journal Article: Private Money and Banking Regulation (2015)
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:fip:fedpwp:15-19

Ordering information: This working paper can be ordered from
phil.library.mailbox@phil.frb.org

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul (beth.paul@phil.frb.org).