Crises in competitive versus monopolistic banking systems
AbstractWe study a monetary, general equilibrium economy in which banks exist because they provide inter-temporal insurance to risk-averse depositors. A "banking crisis" is defined as a case in which banks exhaust their reserve assets. This may (but need not) be associated with liquidation of a storage asset. When such liquidation does occur, the result is a real resource loss to the economy and we label this a "costly banking crisis." There is a monetary authority whose only policy choice is the long-run, constant rate of growth of the money supply, and thus the rate of inflation. Under different model specifications, the banking industry is either a monopoly bank or a competitive banking industry. It is shown that the probability of a banking crisis may be higher either under competition or under monopoly. This is shown to depend on the rate of inflation.
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Bibliographic InfoArticle provided by Federal Reserve Bank of Cleveland in its journal Proceedings.
Volume (Year): (2004)
Issue (Month): ()
Other versions of this item:
- Boyd, John H & De Nicolo, Gianni & Smith, Bruce D, 2004. "Crises in Competitive versus Monopolistic Banking Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 487-506, June.
- Bruce D. Smith & Gianni De NicolÃ³ & John H. Boyd, 2003. "Crisis in Competitive versus Monopolistic Banking Systems," IMF Working Papers 03/188, International Monetary Fund.
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