IDEAS home Printed from https://ideas.repec.org/a/anr/refeco/v4y2012p141-159.html
   My bibliography  Save this article

Narrow Banking

Author

Listed:
  • George Pennacchi

    (Department of Finance, University of Illinois, Champaign, Illinois 61820)

Abstract

This review discusses the history of narrow banks, reform proposals involving narrow banks, and theory and empirical evidence regarding whether narrow banks should play a more prominent role in the financial system. Prior to the early-twentieth century, US banks tended to be much narrower than they are today. Common modern banking practices, such as maturity transformation and explicit loan commitments, arose only after the creation of the Federal Reserve and the FDIC. My review of theory and empirical evidence finds it largely supportive of narrow bank reforms. Most importantly, a narrow-banking system could have huge advantages in containing moral hazard and reducing the overall risk and required regulation of the financial system.

Suggested Citation

  • George Pennacchi, 2012. "Narrow Banking," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 141-159, October.
    • Handle: RePEc:anr:refeco:v:4:y:2012:p:141-159
    as

    Download full text from publisher

    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110311-101758
    Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maciej Albinowski, 2022. "The role of fractional-reserve banking in amplifying credit booms: Evidence from panel data," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(1), pages 63-88, March.
    2. Hanson, Samuel G. & Shleifer, Andrei & Stein, Jeremy C. & Vishny, Robert W., 2015. "Banks as patient fixed-income investors," Journal of Financial Economics, Elsevier, vol. 117(3), pages 449-469.
    3. Simas Kucinskas, 2015. "Liquidity Creation without Banks," Tinbergen Institute Discussion Papers 15-101/VI, Tinbergen Institute.
    4. Michele Fratianni, 2017. "It is time to separate money banks from credit banks in Italy," Mo.Fi.R. Working Papers 138, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    5. Simas Kucinskas, 2015. "Liquidity creation without banks," DNB Working Papers 482, Netherlands Central Bank, Research Department.
    6. Krainer, Robert E., 2017. "Economic stability under alternative banking systems: Theory and policy," Journal of Financial Stability, Elsevier, vol. 31(C), pages 107-118.
    7. Brett Fiebiger, 2014. "‘The Chicago Plan revisited’: a friendly critique," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(3), pages 227-249, December.
    8. Andrzej Slawinski, 2015. "Shielding money creation from severe banking crises: How useful are proposals offered by the alternative reform plans?," Bank i Kredyt, Narodowy Bank Polski, vol. 46(3), pages 191-206.
    9. Erkki Liikanen, 2013. "Changes in banking in the run-up to the crisis," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), A New Model for Balanced Growth and Convergence, chapter 2, pages 12-18, Edward Elgar Publishing.
    10. Maciej Albinowski, 2017. "The role of fractional-reserve banking in amplifying credit booms: evidence from panel data," Working Papers 2016-024, Warsaw School of Economics, Collegium of Economic Analysis.

    More about this item

    Keywords

    bank regulation; narrow banks; money market funds; finance companies; deposit insurance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anr:refeco:v:4:y:2012:p:141-159. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: http://www.annualreviews.org (email available below). General contact details of provider: http://www.annualreviews.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.