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Banking Competition and Macroeconomic Performance

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  • Smith, R Todd

Abstract

This paper uses an equilibrium model to study the costs, in terms of macroeconomic performance, of imperfect competition in banking. The social welfare effects of increased bank competition are complicated and ambiguous in general, but measuring the consequences of increased bank competition with standard gauges of macroeconomic performance provides a clear conclusion: increased bank competition raises the level of income and reduces the severity of business cycles. The quantitative effect on macroeconomic performance of less competition in banking can be large; for instance, an imperfectly competitive banking system can produce a worse macroeconomic outcome than if the economy had no banks.

Suggested Citation

  • Smith, R Todd, 1998. "Banking Competition and Macroeconomic Performance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 793-815, November.
  • Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:4:p:793-815
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    Citations

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    Cited by:

    1. Konstantinos Drakos & Panagiotis Konstantinou, 2005. "Competition and Contestability in Transition Banking: An Empirical Analysis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 3(2), pages 183-209.
    2. Jacob A. Bikker & Sherrill Shaffer & Laura Spierdijk, 2012. "Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1025-1044, November.
    3. repec:ebl:ecbull:v:4:y:2007:i:24:p:1-9 is not listed on IDEAS
    4. Tuncay Celik & Levent Citak, 2016. "Banking Competition, Financial Liberalization and Economic Growth: Evidence from Turkish Economy during the 1990-2014 Period," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1750-1755.
    5. Admiraal, P-H. & Carree, M.A., 2000. "Competition and Market Dynamics on the Russian Deposits Market," ERIM Report Series Research in Management ERS-2000-25-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    6. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Staff Working Papers 04-24, Bank of Canada.
    7. Alejandro Micco & Ugo Panizza, 2006. "Bank Concentration and Credit Volatility," World Scientific Book Chapters,in: Cross-Border Banking Regulatory Challenges, chapter 12, pages 183-197 World Scientific Publishing Co. Pte. Ltd..
    8. Coccorese, Paolo, 2004. "Banking competition and macroeconomic conditions: a disaggregate analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(3), pages 203-219, July.
    9. Blommstein, Hans J. & Spencer, Michael G., 1996. "Sound finance and the wealth of nations," The North American Journal of Economics and Finance, Elsevier, vol. 7(2), pages 115-124.
    10. Kumbhakar, Subal C, et al, 2001. "The Effects of Deregulation on the Performance of Financial Institutions: The Case of Spanish Savings Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 101-120, February.
    11. Lengwiler, Yvan & Rishabh, Kumar, 2017. "Credit from the Monopoly Bank," Working papers 2017/15, Faculty of Business and Economics - University of Basel.
    12. Feldmann, Horst, 2015. "Banking system concentration and unemployment in developing countries," Journal of Economics and Business, Elsevier, vol. 77(C), pages 60-78.
    13. Ramon Caminal, 2002. "Taxation of banks: A theoretical framework," UFAE and IAE Working Papers 525.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    14. Lapteacru, Ion, 2014. "Do more competitive banks have less market power? The evidence from Central and Eastern Europe," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 41-60.
    15. Shaffer, Sherrill & Hoover, Scott, 2008. "Endogenous screening, credit crunches, and competition in laxity," Review of Financial Economics, Elsevier, vol. 17(4), pages 296-314, December.
    16. Benoit Julien & Pere Gomis-Porqueras, 2007. "Market Structure and the Banking Sector," Economics Bulletin, AccessEcon, vol. 4(24), pages 1-9.
    17. Coccorese, Paolo, 2008. "An investigation on the causal relationships between banking concentration and economic growth," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 557-570, June.
    18. repec:eee:riibaf:v:41:y:2017:i:c:p:412-422 is not listed on IDEAS
    19. T.P.Ogun & A.E.Akinlo, 2011. "Financial Sector Reforms and the Performance of the Nigerian Economy," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 3(1), pages 047-060, June.

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