Bank Risk and the Declining Franchise Value of the Banking Systems in the United States and Japan

By Howard Lee, Liliana Rojas-Suárez, Steven Riess Weisbrod

June 1, 1992

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Format: Chicago

Howard Lee, Liliana Rojas-Suárez, and Steven Riess Weisbrod. Bank Risk and the Declining Franchise Value of the Banking Systems in the United States and Japan, (USA: International Monetary Fund, 1992) accessed September 18, 2024

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

This paper associates both the increase in risk taken by wholesale banks in the United States and the decline in earnings at wholesale banks in Japan with a reduction in the franchise value of wholesale banking. In contrast with the conventional view that relates the franchise value of banking to informational advantages over other lenders, this paper argues that banks’ franchise value originates in their provision of liquidity and payments services to their customers. Therefore, the decline in corporate demand for bank liquidity is identified as a major factor explaining the fall of the franchise value. The paper also analyzes recent proposals for banking reform and assesses their relevance for dealing with the problems of wholesale banks.

Subject: Asset and liability management, Bank credit, Banking, Commercial banks, Financial institutions, Financial statements, Liquidity, Loans, Money, Public financial management (PFM)

Keywords: Asset portfolio, Bank B, Bank credit, Bank risk, City bank, Commercial banks, Financial statements, Franchise value, Liquid asset, Liquidity, Loans, Regional bank, Renewal signal, Return on equity, Type A bank, Type B bank, Wholesale bank, WP

Publication Details

Pages:

58
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/045
Stock No:

WPIEA0451992
ISBN:

9781451974249
ISSN:

1018-5941

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