The efficiency implications of financial conglomeration
This paper studies the competitive and efficiency implications of financial conglomeration driven by cost-efficiency gains in monitoring credit and insurance customers. The analysis shows that conglomeration is conducive to tougher competition in the credit market and increases profit in insurance. The aggregate profit in the financial sector does not increase, because the conglomerates pass the cost-efficiency gains on to the borrowers in full. More competitive market for financial services also reduces the aggregate risk in the financial markets, indicating that capital requirements in both sectors should be lower in the presence of financial conglomerates.
|Date of creation:||18 Jul 2004|
|Date of revision:|
|Publication status:||Forthcoming in Journal of Financial Stability, 2008.|
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- Kauppi , Heikki & Koskela , Erkki & Stenbacka , Rune, 2004.
"Equilibrium unemployment and investment under product and labour market imperfections,"
Research Discussion Papers
11/2004, Bank of Finland.
- Kauppi, Heikki & Koskela, Erkki & Stenbacka, Rune, 2004. "Equilibrium Unemployment and Investment Under Product and Labour Market Imperfections," IZA Discussion Papers 1058, Institute for the Study of Labor (IZA).
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