TY  - JOUR
AU  - Kashyap,Anil K.
AU  - Rajan,Raghuram
AU  - Stein,Jeremy C.
TI  - Banks as Liquidity Providers:  An Explanation for the Co-Existence of Lending and Deposit-Taking
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6962
PY  - 1999
Y2  - February 1999
UR  - http://www.nber.org/papers/w6962
L1  - http://www.nber.org/papers/w6962.pdf
N1  - Author contact info:
Anil Kashyap
Booth School of Business
University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-7260
Fax: 773/702-0458
E-Mail: anil.kashyap@chicagobooth.edu

Raghuram Rajan
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-4437
Fax: 773/702-0458
E-Mail: raghuram.rajan@ChicagoBooth.edu

Jeremy C. Stein
Department of Economics
Harvard University
Littauer 209
Cambridge, MA  02138
Tel: 617/496-6455
Fax: 617/496-7352
E-Mail: jeremy_stein@harvard.edu
AB  - This paper addresses the following question: what ties together the traditional commercial banking activities of deposit-taking and lending?  We begin by observing that since banks often lend via commitments, or credit lines, their lending and deposit-taking may be two manifestations of the same primitive function: the provision of liquidity on demand.  After all, once the decision to extend a line of credit has been made, it is really nothing more than a checking account with overdraft privileges. This observation leads us to argue that there will naturally be synergies between the two activities, to the extent that both require banks to hold large volumes of liquid assets (cash and securities) on their balance sheets: if deposit withdrawals and commitment takedowns are imperfectly correlated, the two activities can share any deadweight costs of holding the liquid assets.  We develop this idea with a simple model, and then use a variety of data to test the model's empirical implications.
ER  -