The Development of Opacity in U.S. Banking

25 Pages Posted: 18 Oct 2013 Last revised: 24 May 2023

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

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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.

Suggested Citation

Gorton, Gary B., The Development of Opacity in U.S. Banking (October 2013). NBER Working Paper No. w19540, Available at SSRN: https://ssrn.com/abstract=2342019

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