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Sunspot bank runs in competitive versus monopolistic banking systems

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  • Matsuoka, Tarishi

Abstract

This paper extends the Diamond and Dybvig (1983) model to compare two banking economies: one with a competitive banking system and another with a monopolistic one. It is shown that a competitive banking system is more fragile than a monopolistic one in the sense that the parameter set stipulating that a bank run equilibrium exists in the competitive banking system dominates the set in the monopolistic one.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176512005927
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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 2 ()
Pages: 247-249

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:247-249

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Bank runs; Competitive banks; Monopolistic bank;

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References

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  1. Bruce D. Smith & Gianni De Nicoló & John H. Boyd, 2003. "Crisis in Competitive Versus Monopolistic Banking Systems," IMF Working Papers 03/188, International Monetary Fund.
  2. Neil Wallace, 1988. "Another attempt to explain an illiquid banking system: the Diamond and Dybvig model with sequential service taken seriously," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-16.
  3. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
  4. Franklin Allen & Douglas Gale, 2004. "Competition and financial stability," Proceedings, Federal Reserve Bank of Cleveland, pages 453-486.
  5. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  6. Cooper, Russell & Ross, Thomas W., 1998. "Bank runs: Liquidity costs and investment distortions," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 27-38, February.
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Cited by:
  1. Fiordelisi, Franco & Mare, Davide Salvatore, 2014. "Competition and financial stability in European cooperative banks," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 1-16.

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