The simple analytics of oligopoly banking in developing economies
AbstractPrevious studies have documented the tendency for the commercial banking sector of many developing economies to be highly liquid and be characterised by a persistently high interest rate spread. This paper embeds these stylised facts in an oligopoly model of the banking firm. The paper derives both the loan and deposit rates as a mark up rate over a relatively safe foreign interest rate. Then, using a diagrammatic framework, the paper provides an analysis of: (i) the distribution of financial surplus among savers, business borrowers and banks; (ii) exogenous deposit shocks; (iii) exogenous loan demand shocks; and (iv) the impact of interest rate control on financial intermediation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22266.
Date of creation: Jan 2010
Date of revision:
Oligopoly; commercial banks; developing economies; distribution;
Find related papers by JEL classification:
- D30 - Microeconomics - - Distribution - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
- NEP-BAN-2010-05-02 (Banking)
- NEP-COM-2010-05-02 (Industrial Competition)
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