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A "Barter" Theory of Bank Regulation and Credit Allocation

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  • Thakor, Anjan V
  • Beltz, Jess

Abstract

The authors develop a model in which governmental subsidies to banks produce greater benefits for banks than they cost the taxpayers. In exchange, the government dictates private-sector credit allocation to produce political benefits that exceed the cost of subsidies. As long as banks' losses due to 'forced' credit allocation fall below the value of governmental subsidies, this represents a bilaterally efficient barter between the government and banks. However, the arrangement can also result in a 'trap,' wherein an equilibrium exists in which some banks would be better-off if no bank bartered with the government and yet no bank breaks away. Copyright 1994 by Ohio State University Press.

Suggested Citation

  • Thakor, Anjan V & Beltz, Jess, 1994. "A "Barter" Theory of Bank Regulation and Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 679-705, August.
    • Handle: RePEc:mcb:jmoncb:v:26:y:1994:i:3:p:679-705
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    Cited by:

    1. Joseph G. Haubrich & James B. Thomson, 1994. "A conference on federal credit allocation," Economic Review, Federal Reserve Bank of Cleveland, vol. 30(Q III), pages 2-13.
    2. Thakor, Anjan V., 1996. "Financial conglomeration: Issues and questions," The North American Journal of Economics and Finance, Elsevier, vol. 7(2), pages 135-145.
    3. AKM Rezaul Hossain, 2004. "The Past, Present and Future of Community Reinvestment Act (CRA): A Historical Perspective," Working papers 2004-30, University of Connecticut, Department of Economics.
    4. Thakor, Anjan V. & Furlong Wilson, Patricia, 1995. "Capital requirements, loan renegotiation and the borrower's choice of financing source," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 693-711, June.

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