TY  - JOUR
AU  - Bernanke,Ben S.
AU  - Gertler,Mark L.
TI  - Banking in General Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1647
PY  - 1985
Y2  - June 1985
UR  - http://www.nber.org/papers/w1647
L1  - http://www.nber.org/papers/w1647.pdf
N1  - Author contact info:
Ben S. Bernanke
E-Mail: Rita.C.Proctor@frb.gov, Michelle.A.Smith@frb.gov

Mark Gertler
Department of Economics
New York University
269 Mercer Street, 7th Floor
New York, NY 10003
Tel: 212/998-8931
Fax: 212/995-4186
E-Mail: mark.gertler@nyu.edu
AB  - This paper attempts to provide a step towards understanding the role of financial intermediaries ("banks") in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of particular importance in our model is the assumption that banks are more efficient than the public in evaluating and auditing certain information --intensive loan projects. Banks are also assumed to have private information about their investments, which motivates the heavy reliance of banks on debt rather than equity finance and their need for buffer stock capital. We embed this intermediary sector in a general equilibrium framework, which includes consumers and a non-banking investment sector. Mainly because banks have superior access to some investments, factors affecting the size or efficiency of banking will also have an impact on the aggregate economy. Among the factors affecting intermediation, we show, are the adequacy of bank capital, the riskiness of bank investments, and the costs of bank monitoring. We also show that our model is potentially useful for understanding the macroeconomic effects of phenomena such as financial crises, disintermediation, banking regulation, and certain types of monetary policy.
ER  -