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Optimal capacity in the banking sector and economic growth

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  • Amable, Bruno
  • Chatelain, Jean-Bernard
  • De Bandt, Olivier

Abstract

The paper investigates, from the welfare and growth point of view, the determination of the optimal capacity of the banking system. For that purpose, we consider an overlapping generation model with endogenous growth. There is horizontal differentiation and imperfect competition in the banking sector. Macroeconomic shocks affect the return on capital and, together with the expectations of depositors, condition the stability of the banking sector. We specify to what extent deposit insurance may reduce instability and increase the number of deposits, welfare and growth. We also characterize the conditions under which excess banking capacities may appear and how their reduction may improve welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 26 (2002)
Issue (Month): 2-3 (March)
Pages: 491-517

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Handle: RePEc:eee:jbfina:v:26:y:2002:i:2-3:p:491-517

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Cited by:
  1. Wieneke, Axel & Gries, Thomas, 2011. "SME performance in transition economies: The financial regulation and firm-level corruption nexus," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 221-229, June.
  2. repec:hal:journl:halshs-00706777 is not listed on IDEAS
  3. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The Failure of Financial Macroeconomics and What to Do About it," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00706777, HAL.
  4. Michael Graff, 2005. "Is There an Optimum Level of Financial Activity?," KOF Working papers 05-106, KOF Swiss Economic Institute, ETH Zurich.
  5. Marshall, David A., 2002. "Financial crises and coordination failure: A comment," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 547-555, March.

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