IDEAS home Printed from https://ideas.repec.org/a/oup/revfin/v7y2003i3p409-435..html
   My bibliography  Save this article

Deposit Collateral and the Role of Banks

Author

Listed:
  • Hirofumi Uchida

Abstract

This paper explains the rationale behind deposit collateral that has not been discussed in the literature on financial contracting. In our model extending Hart and Moore (1998) to account for liquidity shocks, deposit collateral has potentially two important effects: the enhancement of pledgeability and the provision of liquidity. We show that only if liquidity shocks are stochastic, both effects are significant and overall efficiency is improved. This improvement is the raison d'être of deposit collateral. The result also establishes a unique role for banks, since deposit collateral can only be taken by these financial institutions. Furthermore, it is shown that the collateral can be implemented in the form of compensating balance requirements with or without commitment loans and is attached with less restrictive efficiency conditions than alternative lending arrangements. JEL classification numbers: G21, G33

Suggested Citation

  • Hirofumi Uchida, 2003. "Deposit Collateral and the Role of Banks," Review of Finance, European Finance Association, vol. 7(3), pages 409-435.
    • Handle: RePEc:oup:revfin:v:7:y:2003:i:3:p:409-435.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1023/B:EUFI.0000022152.94492.a6
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

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

    Other versions of this item:

    Citations

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


    Cited by:

    1. Lim , Jamus Jerome & Minne, Geoffrey, 2014. "Learning from financial crises," Policy Research Working Paper Series 6838, The World Bank.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    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:oup:revfin:v:7:y:2003:i:3:p:409-435.. 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: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/eufaaea.html .

    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.