Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-08-20
Number: 15-101/VI
Author-Name: Simas Kucinskas
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Title: Liquidity Creation without Banks
Abstract: I revisit the Diamond-Dybvig model of liquidity insurance in the presence of hidden trades. The key result is that in this environment deposit-taking banks are not necessary for the efficient provision of liquidity. Mutual funds are constrained efficient when supplemented with the same government liquidity regulation that is required to make a banking system constrained efficient. However, whereas banks are potentially subject to costly panics, mutual funds are not run-prone and hence superior from a welfare perspective if runs happen with a non-zero probability.
Classification-JEL: D91, E61, G21, G23, G28
Keywords: Liquidity creation, liquidity insurance, hidden trades, bank runs, mutual funds, narrow banking, financial stability
File-Url: https://papers.tinbergen.nl/15101.pdf
File-Format: application/pdf
File-Size: 260273 bytes
Handle: RePEc:tin:wpaper:20150101