Banks in the Market for Liquidity

49 Pages Posted: 27 Apr 2000 Last revised: 29 Sep 2022

See all articles by Peter M. Garber

Peter M. Garber

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Steven R. Weisbrod

Consultant; Inter-American Development Bank (IDB)

Date Written: June 1990

Abstract

Banks are unique among financial institutions because they are the cheapest source of liquidity in the economy. Banks choose to hold reserves to facilitate settlement of end-of-day net due to positions arising from payments operations. Money market substitutes for bank liabilities do not escape from the cost of reserves since their issuers lean on banks to provide liquidity. Since the cost of reserves falls on all issuers of less liquid liabilities seeking access to payment services, including non-bank intermediaries, reserves cannot represent a tax on the banking system alone.

Suggested Citation

Garber, Peter M. and Weisbrod, Steven R., Banks in the Market for Liquidity (June 1990). NBER Working Paper No. w3381, Available at SSRN: https://ssrn.com/abstract=226675

Peter M. Garber (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States
401-863-2145 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven R. Weisbrod

Consultant

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States
202-623-2445 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
81
Abstract Views
1,415
Rank
547,134
PlumX Metrics