Abstract
When there is initial asymmetric information between lenders and borrowers, accepting checkable deposits can give banks information about the quality of future borrowers. Hence the two main types of bank activities are complementarities. Nevertheless, it is shown that intermediaries who fund themselves by other means, and thus do not get the same borrower information as banks, can coexist with banks in equilibrium. With the possibility of legally binding contingent contracts, banks earn zero expected profits in equilibrium in spite of their information advantage relative to other intermediaries. If legally binding contingent contracts are infeasible, there may exist an implicit contract equilibrium.
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