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Comparative advantages in banking and strategic specialization and diversification

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  • Mallick, Indrajit

Abstract

Abstract This paper shows how banks specialize in different activities when they start with different comparative advantages. The possibility of wrong specialization is shown in a Cournot game with convexities. Different resolution mechanisms are discussed. With risk averse financial intermediaries, excessive diversification is shown to be a problem. Financial innovation like credit derivatives and securitization can mitigate the problem and result in optimal specialization and diversification patterns.

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File URL: http://mpra.ub.uni-muenchen.de/32605/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32605.

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Date of creation: 31 Dec 2002
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Publication status: Published in Finance, Trade and Development NA.NA(2004): pp. 1-26
Handle: RePEc:pra:mprapa:32605

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Related research

Keywords: Comparative Advantage; Specialization; Diversification;

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  1. Sherrill Shaffer, 1989. "Pooling intensifies joint failure risk," Working Papers 89-1, Federal Reserve Bank of Philadelphia.
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Cited by:
  1. Mallick, Indrajit, 2004. "Does the Future of the Indian Public Sector Banks lie in Mergers and Acquisitions?," MPRA Paper 32866, University Library of Munich, Germany.

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