Warehouse Banking

Giorgia Piacentino, Anjan Thakor () and Jason Donaldson
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Giorgia Piacentino: Olin Business School at Washington Unive
Jason Donaldson: Washington University in St Louis

No 588, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops a theory of banking that is rooted in the evolution of banks from warehouses of commodities and precious goods, which occurred even before the invention of coinage or fiat money. The theory helps to explain why modern banks offer warehousing (custodial and deposit-taking) services within the same institutions that provides lending services and how banks create funding liquidity by creating private money. In our model, the warehouse endogenously becomes a bank because its superior storage technology allows it to enforce loan repayment most effectively. The warehouse makes loans by issuing “fake†warehouse receipts—those not backed by actual deposits— rather than by lending out deposited goods. The model provides a rationale for banks that take deposits, make loans, and have circulating liabilities, even in an environment without risk or asymmetric information. Our analysis provides new perspectives on narrow banking, liquidity ratios and reserves requirements, capital regulation, and monetary policy.

Date: 2016
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mon and nep-pay
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Related works:
Journal Article: Warehouse banking (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:588

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