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Should Banks Be "Narrowed"? An Evaluation of a Plan to Reduce Financial Instability

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  • Biagio Bossone

Abstract

In this issue, Biagio Bossone of the IMF evaluates narrow banking from the perspective of modern theories of financial intermediation. These theories portray the status quo banking system as a solution to otherwise intractable problems of imperfect information, risk, and even moral hazard. The system's characteristic coupling of liquid liabilities with illiquid assets-seen by some as an undesirable "mismatch"? in fact contributes greatly to the efficiency of the economy. Bossone argues that these efficiency gains outweigh the disadvantages associated with the existing legal framework.

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  • Biagio Bossone, "undated". "Should Banks Be "Narrowed"? An Evaluation of a Plan to Reduce Financial Instability," Economics Public Policy Brief Archive ppb_69, Levy Economics Institute.
    • Handle: RePEc:lev:levppb:ppb_69
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    References listed on IDEAS

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    1. Ronnie J. Phillips, "undated". "Narrow Banking Reconsidered, The Functional Approach to Financial Reform," Economics Public Policy Brief Archive ppb_17, Levy Economics Institute.
    2. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit‐taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, February.
    3. World Bank, 2001. "Finance for Growth : Policy Choices in a Volatile World," World Bank Publications - Books, The World Bank Group, number 13895.
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