Intermediation Variety

Jason Roderick Donaldson, Giorgia Piacentino and Anjan Thakor ()

No 25946, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explain the emergence of a variety of intermediaries in a model based only on differences in their funding costs. Banks have a low cost of capital due to, say, safety nets or money-like liabilities. We show, however, that this can be a disadvantage, because it exacerbates soft-budget-constraint problems, making it costly to finance innovative projects. Non-banks emerge to finance them. Their high cost of capital is an advantage, because it works as a commitment device to withhold capital, solving soft-budget-constraint problems. Still, non-banks never take over the entire market, but coexist with banks in equilibrium.

JEL-codes: G21 G23 G24 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-ban
Note: CF
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Published as JASON RODERICK DONALDSON & GIORGIA PIACENTINO & ANJAN THAKOR, 2021. "Intermediation Variety," The Journal of Finance, vol 76(6), pages 3103-3152.

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