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Monopolistic Pricing in the Banking Industry: a Dynamic Portfolio Model

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  • Enzo Dia

    (Università degli studi di Milano-Bicocca)

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Abstract

This work develops a portfolio model of the banking firm where both the size and composition of the portfolio are jointly determined. The model provides a quite simple micro-foundation of the credit channel of the transmission of monetary policy. It allows analysing the pricing policies of the banking firm, and shows how interest rate shocks and credit quality shocks (the real shocks that change expected default costs) affect the equilibrium level of loans and deposits.

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File URL: http://128.118.178.162/eps/fin/papers/0411/0411025.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0411025.

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Length: 51 pages
Date of creation: 11 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0411025

Note: Type of Document - pdf; pages: 51
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Web page: http://128.118.178.162

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  8. Hess, Alan C, 1991. "The Effects of Transaction Costs on Households' Financial Asset Demands," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 383-409, August.
  9. Mitchell Berlin & Loretta J. Mester, 1998. "Deposits and relationship lending," Working Papers 98-22, Federal Reserve Bank of Philadelphia.
  10. Berger, Allen N & Udell, Gregory F, 1992. "Some Evidence on the Empirical Significance of Credit Rationing," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 1047-77, October.
  11. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-66, September.
  12. Steve Salop, 1976. "Information and monopolistic competition," Special Studies Papers 74, Board of Governors of the Federal Reserve System (U.S.).
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  14. Mark J. Flannery, 1991. "Debt maturity and the deadweight cost of leverage: optimally financing banking firms," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  15. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October.
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  17. Fried, Joel & Howitt, Peter, 1980. "Credit Rationing and Implicit Contract Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 471-87, August.
  18. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  19. Cosimano, Thomas F. & McDonald, Bill, 1998. "What's different among banks?," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 57-70, February.
  20. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
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  22. Hutchison, David E, 1995. "Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 217-31, February.
  23. Thistle, Paul D. & McLeod, Robert W. & Conrad, B. Lynne, 1989. "Interest rates and bank portfolio adjustments," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 151-161, March.
  24. English, William B., 1999. "Inflation and financial sector size," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 379-400, December.
  25. Cosimano, Thomas F., 1988. "The banking industry under uncertain monetary policy," Journal of Banking & Finance, Elsevier, vol. 12(1), pages 117-139, March.
  26. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
  27. Hess, Alan C, 1995. "Portfolio Theory, Transaction Costs, and the Demand for Time Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1015-32, November.
  28. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  29. Salop, Steven, 1976. "Information and Monopolistic Competition," American Economic Review, American Economic Association, vol. 66(2), pages 240-45, May.
  30. Osborne, Dale K, 1982. "The Cost of Servicing Demand Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 479-93, November.
  31. Cosimano, Thomas F. & Van Huyck, John B., 1989. "Dynamic monetary control and interest rate stabilization," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 53-63, January.
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