Theories of the Banking Firm: A Review of the Literature*

Abstract

This paper reviews the theoretical literature on the banking firm. Apart from studies dealing purely with the reasons why banks exist, the survey is fairly comprehensive in that it covers the main categories of microeconomic models of bank behaviour. The emphasis is on recent work, which also includes modern, information-based, theories of loan commitments, credit rationing, collateral and the bank-client relationship.

The credit crunch in East Asia: what can bank excess liquid assets tell us?

“…As is well known from the early literature surveyed by Baltensperger (1980); Santomero (1984) and Swank (1996), reserve management models deal with a bank's funding or liquidity risk. To manage this type of risk, and in deciding how much cash and other liquid assets they should hold, banks internalize the fact that they can draw funds from either the interbank market or the central bank in case of unexpected contingencies.…”

The Industrial Organization of Banking

“…The early literature on bank behavior (see, for instance, Pringle, 1973, Miller, 1975, Baltensperger, 1980, and Swank, 1996 devoted considerable attention to the issue of asset-liability interdependence, in light of the conclusion in earlier work by Klein (1971) indicating that banks' asset allocations could be examined separately from liability funding decisions. noted that this portfolio separation result followed from Klein's assumption that a bank's asset demand and liability cost conditions are functions of the ratios of individual balance-sheet amounts to total assets and liabilities.…”

The Impact of Access to Credit on Household Welfare in Rural Vietnam

“…A considerable amount of research has been devoted to understanding the functioning of credit markets, credit market imperfections and credit rationing (Amano, 1999;Bester, 1985Bester, , 1987de Meza & Webb, 1987;Hellmann & Stiglitz, 2000;Stiglitz & Weiss, 1981;Swank, 1996). Credit rationing is broadly regarded as an excess demand for bank loans caused by the asymmetry of information on investment projects between banks and borrowers.…”