Bank Competition and Financial Stability
AbstractWe study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers. If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk. Conversely, if the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal. These results are empirically relevant and carry significant implications for financial policy.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/295.
Date of creation: 01 Dec 2011
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-BAN-2012-01-18 (Banking)
- NEP-CBA-2012-01-18 (Central Banking)
- NEP-COM-2012-01-18 (Industrial Competition)
- NEP-MAC-2012-01-18 (Macroeconomics)
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