NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Development of Opacity in U.S. Banking

Gary Gorton

NBER Working Paper No. 19540
Issued in October 2013
NBER Program(s):CF, DAE, ME

An examination of U.S. banking history shows that economically efficient private bank money requires that information-revealing securities markets for bank liabilities be closed. That is, banks are optimally opaque, which is why they are regulated and examined. I show this by examining the transition from private bank notes, the predominant form of money before the U.S. Civil War, to demand deposits and show that markets endogenous closed. The opacity of bank money in the recent financial crisis is also briefly discussed.

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Document Object Identifier (DOI): 10.3386/w19540

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