The Development of Opacity in U.S. Banking
25 Pages Posted: 18 Oct 2013 Last revised: 24 May 2023
There are 2 versions of this paper
Date Written: October 2013
Abstract
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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