Universal banking, competition and risk in a macro model
A stylized macroeconomic model is developed with an indebted, heterogeneous Investment Banking Sector funded by borrowing from a retail banking sector. The government guarantees retail deposits. Investment banks choose how risky their activities should be. We compared the benefits of separated vs. universal banking modelled as a vertical integration of the retail and investment banks. The incidence of banking default is considered under different constellations of shocks and degrees of competitiveness. The benefits of universal banking rise in the volatility of idiosyncratic shocks to trading strategies and are positive even for very bad common shocks, even though government bailouts, which are costly, are larger compared to the case of separated banking entities. The welfare assessment of the structure of banks may depend crucially on the kinds of shock hitting the economy as well as on the efficiency of government intervention.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sire.ac.uk
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
- Greenwood, Jeremy & Jovanovic, Boyan, 1988.
"Financial Development, Growth, And The Distribution Of Income,"
88-12, C.V. Starr Center for Applied Economics, New York University.
- Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
- Greenwood, J. & Jovanovic, B., 1988. "Financial Development, Growth, And The Distribution Of Income," RCER Working Papers 131, University of Rochester - Center for Economic Research (RCER).
- Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
- Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
- W. Bolt & A. F. Tieman, 2001.
"Banking competition, risk, and regulation,"
WO Research Memoranda (discontinued)
647, Netherlands Central Bank, Research Department.
- John H. Boyd & Chun Chang & Bruce D. Smith, 1998.
"Moral hazard under commercial and universal banking,"
585, Federal Reserve Bank of Minneapolis.
- Boyd, John H & Chang, Chun & Smith, Bruce D, 1998. "Moral Hazard under Commercial and Universal Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 426-68, August.
- John H. Boyd & Chun Chang & Bruce D. Smith, 1998. "Moral hazard under commercial and universal banking," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 426-471.
- Repullo, Rafael, 2003.
"Capital Requirements, Market Power and Risk-Taking in Banking,"
CEPR Discussion Papers
3721, C.E.P.R. Discussion Papers.
- Repullo, Rafael, 2004. "Capital requirements, market power, and risk-taking in banking," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 156-182, April.
- Rafael Repullo, 2002. "Capital requirements, market power, and risk-taking in banking," Proceedings 809, Federal Reserve Bank of Chicago.
- Gary B. Gorton, 2010. "Questions and Answers about the Financial Crisis," NBER Working Papers 15787, National Bureau of Economic Research, Inc.
- Stijn Claessens & Luc Laeven, 2005.
"Financial Dependence, Banking Sector Competition, and Economic Growth,"
Journal of the European Economic Association,
MIT Press, vol. 3(1), pages 179-207, 03.
- Claessens, Stijn & Laeven, Luc, 2005. "Financial dependence, banking sector competition, and economic growth," Policy Research Working Paper Series 3481, The World Bank.
- Yunus Aksoy & Henrique S. Basso & Javier Coto-Martinez, 2009.
"Lending Relationships and Monetary Policy,"
Birkbeck Working Papers in Economics and Finance
0912, Birkbeck, Department of Economics, Mathematics & Statistics.
- Franklin Allen & Douglas Gale, 2004.
"Competition and financial stability,"
Federal Reserve Bank of Cleveland, pages 453-486.
- Kenneth French & Martin Baily & John Campbell & John Cochrane & Douglas Diamond & Darrell Duffie & Anil Kashyap & Frederic Mishkin & Raghuram Rajan & David Scharfstein & Robert Shiller & Hyun Song Shi, 2010. "The Squam Lake Report: Fixing the Financial System," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(3), pages 8-21.
- Sam Allgood & Arthur Snow, 1998. "The Marginal Cost of Raising Tax Revenue and Redistributing Income," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1246-1273, December.
- Boot, Arnoud W A & Thakor, Anjan V, 1997. "Banking Scope and Financial Innovation," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1099-1131.
- 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.
When requesting a correction, please mention this item's handle: RePEc:edn:sirdps:322. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gina Reddie)
If references are entirely missing, you can add them using this form.