Should Banks Be Narrowed?

Author/Editor:

Biaggio Bossone

Publication Date:

October 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Over the past seventy years, the proposal to narrow the scope of banks has occurred more and more frequently in financial debates and research. Narrow banking would prevent deposit-issuing banks from lending to the private sector and restrict nonbank intermediaries from funding investments with demand deposits. Proponents of narrow banking defend it as a step toward greater financial stability and efficiency. This study reviews the literature on the subject, contrasts the concept of narrow banking with contemporary banking theories, and evaluates the potential consequences of narrow banking on finance and the real economy. The study also runs an empirical exercise to estimate the costs of bank narrowness and draws policy conclusions.

Series:

Working Paper No. 01/159

Subject:

English

Publication Date:

October 1, 2001

ISBN/ISSN:

9781451857672/1018-5941

Stock No:

WPIEA1592001

Format:

Paper

Pages:

34

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