What question did this study set out to answer?

To determine how banks produce safe money-like debt by withholding information about their loans and how this mechanism affects firm financing choices between banks and capital markets.

March 30, 2017American Economic Review

Banks as Secret Keepers

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To determine how banks produce safe money-like debt by withholding information about their loans and how this mechanism affects firm financing choices between banks and capital markets.
Formulated a theoretical framework analyzing private information production on bank-held loan portfolios.
Modeled the equilibrium tradeoff between opaque bank intermediation and transparent capital market financing.
Concealing loan-level information prevents agents from acquiring costly private information, allowing bank debt to trade stably at par like money.
The trade-off between smaller amounts of safe liquidity and larger amounts of risky liquidity governs whether firms borrow through banks or public capital markets.

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Implication

Theoretical economic analysis reveals loan opacity maintains safe liquidity in financial intermediaries, indicating firm financing decisions depend on tradeoffs between safe and risky liquidity.

Cite This Study

Dang et al. (2017) studied this question.

synapsesocial.com/papers/6a1f4318da07783dec233c23 https://doi.org/10.1257/aer.20140782

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Implication

Theoretical economic analysis reveals loan opacity maintains safe liquidity in financial intermediaries, indicating firm financing decisions depend on tradeoffs between safe and risky liquidity.

Banks as Secret Keepers

Key Points

Discussion

Implication

Cite This Study

Banks as Secret Keepers

Key Points

Discussion

Implication

Cite This Study

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