Liquidity Provision, Bank Capital, and the Macroeconomy

Gary Gorton, Andrew Winton

Research output: Contribution to journalArticlepeer-review

66 Scopus citations


New bank equity must come from somewhere. In general equilibrium, raising bank capital requirements means either that banks produce less short-term debt (as debt holders must become shareholders), or short-term debt is not reduced and the banking system acquires nonbank equity (as the shareholders in nonbanks become shareholders in banks). The welfare effects involve a trade-off because bank debt is special as it is used for transactions purposes, but more bank capital can reduce the chance of bank failure (producing welfare losses).

Original languageEnglish (US)
Pages (from-to)5-37
Number of pages33
JournalJournal of Money, Credit and Banking
Issue number1
StatePublished - Feb 1 2017

Bibliographical note

Publisher Copyright:
© 2017 The Ohio State University


  • G21
  • G28
  • bank capital
  • liquidity provision


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