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Banks, Markets, and Efficiency Author info | Abstract | Publisher info | Download info | Related research | Statistics Falko Fecht (Deutsche Bundesbank)
Antoine Martin (Federal Reserve Bank of New York)
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Following Diamond (1997) and Fecht (2004) we use a model in which financial market access of households restrains the efficiency of the liquidity insurance that banks' deposit contracts provide to households that are subject to idiosyncratic liquidity shocks. But in contrast to these approaches we assume spacial monopolistic competition among banks. Since monopoly rents are assumed to bring about inefficiencies, improved financial market access that limits monopoly rents also entails a positive effect. But this beneficial effect is only relevant if competition among banks does not sufficiently restrain monopoly rents already. Thus our results suggest that in the bank-dominated financial system of Germany, in which banks intensely compete for households' deposits, improved financial market access might reduce welfare because it only reduces risk sharing. In contrast, in the banking system of the U.S., with less competition for households' deposits, a high level of households' financial market participation might be beneficial.
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Paper provided by EconWPA in its series Finance with number
0507017.
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Length: 35 pages
Date of creation: 19 Jul 2005Date of revision:
Handle: RePEc:wpa:wuwpfi:0507017Note: Type of Document - pdf; pages: 35Contact details of provider: Web page: http://129.3.20.41
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Keywords: Financial Intermediaries ; Risk Sharing ; Banking Competition ; Comparing Financial Systems ; Other versions of this item:
Article Paper Fecht, Falko & Martin, Antoine, 2005.
"Banks, markets, and efficiency ,"
Discussion Paper Series 2: Banking and Financial Studies
2005,04, Deutsche Bundesbank, Research Centre.
[Downloadable!] Falko Fecht & Antoine Martin, 2005.
"Banks, markets, and efficiency ,"
Staff Reports
210, Federal Reserve Bank of New York.
[Downloadable!] Find related papers by JEL classification: E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data) G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
This paper has been announced in the following NEP Reports :
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Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
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Other versions: Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2008.
"Financial Intermediaries, Markets, and Growth ,"
Journal of Money, Credit and Banking ,
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[Downloadable!] (restricted)
Other versions:
Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2004.
"Financial intermediaries, markets, and growth ,"
Working Papers
04-24, Federal Reserve Bank of Philadelphia.
[Downloadable!] Fecht, Falko & Huang, Kevin & Martin, Antoine, 2005.
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Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
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Other versions:
Fecht, Falko, 2003.
"On the Stability of Different Financial Systems ,"
Discussion Paper Series 1: Economic Studies
2003,10, Deutsche Bundesbank, Research Centre.
[Downloadable!] Falko Fecht, 2003.
"On the Stability of Different Financial Systems ,"
Finance
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"On the Stability of Different Financial Systems ,"
Working Paper Series: Finance and Accounting
110, Department of Finance, Goethe University Frankfurt am Main.
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"Predicting Household Switching Behavior and Switching Costs at Depository Institutions ,"
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Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2005.
"Bank Mergers, Competition and Liquidity ,"
Working Paper Series
182, Sveriges Riksbank (Central Bank of Sweden).
[Downloadable!]
Other versions:
Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2004.
"Bank Mergers, Competition and Liquidity ,"
CEPR Discussion Papers
4260, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Elena Carletti & Philipp Hartmann & Giancarlo Spagnolo, 2003.
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Working Paper Series
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"Bank Mergers, Competition, and Liquidity ,"
Journal of Money, Credit and Banking ,
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Douglas W. Diamond & Raghuram G. Rajan, .
"Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking ,"
CRSP working papers
476, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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Proceedings ,
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Other versions: von Thadden, Ernst-Ludwig, 1999.
"Liquidity creation through banks and markets: Multiple insurance and limited market access ,"
European Economic Review ,
Elsevier, vol. 43(4-6), pages 991-1006, April.
[Downloadable!] (restricted)
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