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The Regulation of Banks' Access to Credit Market under Imperfect Competition: the Effects on Banking System Stability Estimated

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  • Mamonov, M.

    (Center for Macroeconomic Analysis and Short-term Forecasting (CMASF) at the Institute for Economic Forecasting, Moscow, Russia
    National Research University Higher School of Economics, Moscow, Russia)

Abstract

This paper analyzes those potential opportunities that the Russian government could use over the recent years for the regulation of the banks' access to credit market, namely, the privatization or nationalization of banks, facilitating increases in their size, and the variation of deposit insurance coverage. For each option of government regulation we conduct an empirical estimation of the influence that this exact option could have on the stability of banking system, taking into account the imperfection of competition on credit market. Special attention was paid on the estimation of thresholds that could separate positive and negative influence of each regulating option on system stability. Estimates were made on the basis of panel dataset covering balance sheets and profit and loss accounts of all Russian banks that disclosed these data through the Bank of Russia's web-site during 2004 Q1 - 2012 Q4, i.e. before the change of the Head of the Bank of Russia. Our estimations have shown that in order to support stability of banking system during the period analyzed (in-sample) and in 2013-2016 (out-of-sample, in case no internal or external shocks heat the economy) the Russian government, the Bank of Russia and the Deposit Insurance Agency could - taking the levels of banks' market power and credit risk distribution as exogenous - first of all increase the government investments in capital of state-owned banks. Second, they could raise the minimal capital requirements on already operating banks (on RUB 50-100 ml annually during 2013-2016). Third, they could allow decreasing the minimal deposit insurance coverage.

Suggested Citation

  • Mamonov, M., 2017. "The Regulation of Banks' Access to Credit Market under Imperfect Competition: the Effects on Banking System Stability Estimated," Journal of the New Economic Association, New Economic Association, vol. 33(1), pages 44-74.
  • Handle: RePEc:nea:journl:y:2017i:33:p:44-74
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    References listed on IDEAS

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    More about this item

    Keywords

    banks; regulation; stability; competition; market power; ownership; minimal capital; deposit insurance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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