TY  - JOUR
AU  - Strahan,Philip
TI  - Liquidity Production in 21st Century Banking
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13798
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13798
L1  - http://www.nber.org/papers/w13798.pdf
N1  - Author contact info:
Philip Strahan
Carroll School of Management
324B Fulton Hall
Boston College
Chestnut Hill, MA  02467
Tel: 617/552-6430
E-Mail: philip.strahan@bc.edu
AB  - I consider banks' role in providing funding liquidity (the ability to raise cash on demand) and market liquidity (the ability to trade assets at low cost), and how these roles have evolved.  Traditional banks made illiquid loans funded with liquid deposits, thus producing funding liquidity on the liability side of the balance sheet.  Deposits are less important in 21st century banks, but funding liquidity from lines of credit and loan commitments has become more important.  Banks also provide market liquidity as broker-dealers and traders in securities and derivatives markets, in loan syndication and sales, and in loan securitization.  Many institutions besides banks provide market liquidity in similar ways, but banks dominate in producing funding liquidity because of their comparative advantage in managing funding liquidity risk.  This advantage stems from the structure of bank balance sheets as well as their access to government-guaranteed deposits and central-bank liquidity.
ER  -