Crises in competitive versus monopolistic banking systems
We study a monetary, general equilibrium economy in which banks exist because they provide inter-temporal insurance to risk-averse depositors. A "banking crisis" is defined as a case in which banks exhaust their reserve assets. This may (but need not) be associated with liquidation of a storage asset. When such liquidation does occur, the result is a real resource loss to the economy and we label this a "costly banking crisis." There is a monetary authority whose only policy choice is the long-run, constant rate of growth of the money supply, and thus the rate of inflation. Under different model specifications, the banking industry is either a monopoly bank or a competitive banking industry. It is shown that the probability of a banking crisis may be higher either under competition or under monopoly. This is shown to depend on the rate of inflation.
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Volume (Year): (2004)
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- Champ, B. & Snith, B.D. & Williamson, D.S., 1991.
"Currency Elasticity and Banking Panics: Theory and Evidence,"
RCER Working Papers
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- John H. Boyd & Pedro Gomis-Porqueras & Sungkyu Kwak & Bruce David Smith, 2014.
"A User's Guide to Banking Crises,"
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Society for AEF, vol. 15(2), pages 800-892, November.
- Bruce D. Smith, 2002. "Monetary Policy, Banking Crises, and the Friedman Rule," American Economic Review, American Economic Association, vol. 92(2), pages 128-134, May.
- John H. Boyd & Chun Chang & Bruce D. Smith, 1998.
"Deposit insurance: a reconsideration,"
593, Federal Reserve Bank of Minneapolis.
- Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
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