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Banking Competition, Capital Accumulation, And Interest On Reserves

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  • Edgar A. Ghossoub
  • Robert R. Reed

Abstract

In recent years, the increased concentration of activity in the banking system has received much attention. In addition, numerous central banks have expanded their range of policy tools to include paying interest on reserves. The objective of this paper is to study the implications of concentration in the banking sector and the effects of various reserve policies. Changes in the competitive structure affect investment, risk‐sharing, and social welfare. In general, perfect competition should not be a regulatory goal for the banking system. Moreover, it is generally not optimal to pay the same interest rate on required reserves as excess reserves. (JEL O42, D42, E52)

Suggested Citation

  • Edgar A. Ghossoub & Robert R. Reed, 2021. "Banking Competition, Capital Accumulation, And Interest On Reserves," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 671-695, April.
    • Handle: RePEc:bla:ecinqu:v:59:y:2021:i:2:p:671-695
    DOI: 10.1111/ecin.12962
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    Cited by:

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    3. Jiahong Gao & Robert R. Reed, 2023. "Preventing bank panics: The role of the regulator's preferences," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 387-422, May.
    4. Gao, Jiahong & Reed, Robert R., 2021. "Sunspot bank runs and fragility: The role of financial sector competition," European Economic Review, Elsevier, vol. 139(C).
    5. Ghossoub, Edgar A., 2023. "Economic growth, inflation, and banking sector competition," Economic Modelling, Elsevier, vol. 129(C).

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    More about this item

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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