Financial Intermediaries and Liquidity Creation


Research output: Contribution to journalArticlepeer-review


Trading losses associated with information asymmetries can be mitigated by designing securities which split the cash flows of underlying assets. These securities, which can arise endogenously, have values that do not depend on the information known only to informed agents. Bank debt (deposits) is an example of this type of liquid security which protect relatively uninformed agents, and we provide a rationale for deposit insurance in this content. High‐grade corporate debt and government bonds are other examples, implying that a money market mutual fund‐based payments system may be an alternative to one based on insured bank deposits. 1990 The American Finance Association

Original languageEnglish (US)
Pages (from-to)49-71
Number of pages23
JournalThe Journal of Finance
Issue number1
StatePublished - Mar 1990
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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