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Evolutionary model of the bank size distribution

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  • Kaldasch, Joachim

Abstract

An evolutionary model of the bank size distribution is presented based on the exchange and creation of deposit money. In agreement with empirical results the derived size distribution is lognormal with a power law tail. The theory is based on the idea that the size distribution is the result of the competition between banks for permanent deposit money. The exchange of deposits causes a preferential growth of banks with a fitness that is determined by the competitive advantage to attract permanent deposits. While growth rate fluctuations are responsible for the lognormal part of the size distribution, treating the mean growth rate of banks as small, large banks benefit from economies of scale generating the Pareto tail. --

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2014-10
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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 8 (2014)
Issue (Month): 10 ()
Pages: 1-16

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Handle: RePEc:zbw:ifweej:201410

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Keywords: Evolutionary economics; bank size; money; competition; Gibrat’; s law;

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  1. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, Elsevier, vol. 23(2-4), pages 135-194, February.
  2. Joachim Kaldasch, 2012. "Evolutionary Model of the Growth and Size of Firms," Papers 1208.1123, arXiv.org.
  3. Huberto M. Ennis, 2001. "On the size distribution of banks," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 1-25.
  4. Tschoegl, Adrian E, 1983. "Size, Growth, and Transnationality among the World's Largest Banks," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 56(2), pages 187-201, April.
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  8. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 1(1), pages 255-294, 05.
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  10. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, Elsevier, vol. 17(2-3), pages 221-249, April.
  11. Goddard, John & Molyneux, Phil & Wilson, John O S, 2004. "Dynamics of Growth and Profitability in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(6), pages 1069-90, December.
  12. Yeats, Alexander J & Irons, Edward D & Rhoades, Stephen A, 1975. "An Analysis of New Bank Growth," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 48(2), pages 199-203, April.
  13. Rhoades, Stephen A & Yeats, Alexander J, 1974. "Growth, Consolidation and Mergers in Banking," Journal of Finance, American Finance Association, American Finance Association, vol. 29(5), pages 1397-1405, December.
  14. Peter Richmond & Sorin Solomon, 2000. "Power Laws are Boltzmann Laws in Disguise," Papers cond-mat/0010222, arXiv.org.
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