Narrow banking

Research output: Contribution to journalReview articlepeer-review


This review discusses the history of narrow banks, reform proposals involving narrow banks, and theory and empirical evidence regarding whether narrow banks should play a more prominent role in the financial system. Prior to the early-twentieth century, US banks tended to be much narrower than they are today. Common modern banking practices, such as maturity transformation and explicit loan commitments, arose only after the creation of the Federal Reserve and the FDIC. My review of theory and empirical evidence finds it largely supportive of narrow bank reforms. Most importantly, a narrow-banking system could have huge advantages in containing moral hazard and reducing the overall risk and required regulation of the financial system.

Original languageEnglish (US)
Pages (from-to)141-159
Number of pages19
JournalAnnual Review of Financial Economics
StatePublished - Oct 2012


  • bank regulation
  • deposit insurance
  • finance companies
  • money market funds
  • narrow banks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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