Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87183
Authors: 
Arping, Stefan
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-032/IV/DSF52
Abstract: 
We embed proprietary trading into a model of bank lending. Opportunities to engage in purely speculative trading can harm the real economy. This is because banks, when devoting cheap but scarce deposits to lending rather than to gambling, must be compensated for giving up gambling rents. This makes corporate loans more costly, stifling real economic activity. Worse, gambling can crowd out lending, forcing firms to seek costly bond financing. By contrast, when trading is required for the provision of complementary banking services, banks may actually engage in too little trading. Ring-fencing trading can facilitate the efficient provision of banking services.
Subjects: 
Proprietary Trading
Volcker Rule
Disintermediation
Shadow Banking
Depositor Preference
Safe Harbors
Covered Bonds
Ring-fencing
Financial Stability
JEL: 
G2
G3
Document Type: 
Working Paper

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