The dynamics of a banking duopoly with capital regulations
We analyse the dynamics of a banking duopoly game with heterogeneous players (as regards the type of expectations’ formation), to investigate the effects of the capital requirements introduced by international accords (Basel-I in 1988 and more recently Basel-II and Basel-III), in the context of the Monti-Klein model. This analysis reveals that the policy of introducing a capital requirement may stabilise the market equilibrium. Moreover, we show that when the capital standard is reduced the market stability is lost through a flip bifurcation and subsequently a cascade of flip bifurcations may lead to periodic cycles and chaos. Therefore, although on the one side the capital regulation is harmful for the equilibrium loans’ volume and profit, on the other side it is effective in keeping or restoring the stability of the Cournot-Nash equilibrium in the banking duopoly.
|Date of creation:||01 Sep 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Via Cosimo Ridolfi, 10 - 56124 PISA|
Phone: +39 050 22 16 466
Fax: +39 050 22 16 384
Web page: http://www.ec.unipi.it
More information through EDIRC
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.:
- Xavier Vives, 2010.
"Competition and Stability in Banking,"
Working Papers Central Bank of Chile
576, Central Bank of Chile.
- Xavier Vives T., 2010. "Competition and Stability in Banking," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 13(2), pages 85-112, August.
- Xavier Vives, 2011. "Competition and Stability in Banking," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.), Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 12, pages 455-502 Central Bank of Chile.
- Fanti, Luciano & Gori, Luca, 2012.
"The codetermined firm in a Cournot duopoly: A stability analysis,"
Elsevier, vol. 29(4), pages 1242-1247.
- Fanti, Luciano & Gori, Luca, 2011. "The codetermined firm in a Cournot duopoly: a stability analysis," MPRA Paper 34144, University Library of Munich, Germany.
- Dewatripont, Mathias & Tirole, Jean, 1992.
"Efficient Governance Structure : Implications for Banking Regulation,"
IDEI Working Papers
18, Institut d'Économie Industrielle (IDEI), Toulouse.
- Mathias Dewatripont & Jean Tirole, 1993. "Efficient governance structure: implications for banking regulation," ULB Institutional Repository 2013/9655, ULB -- Universite Libre de Bruxelles.
- Wouter J. Denhaan, 2000.
"The Importance Of The Number Of Different Agents In A Heterogeneous Asset-Pricing Model,"
Computing in Economics and Finance 2000
349, Society for Computational Economics.
- Den Haan, Wouter J., 2001. "The importance of the number of different agents in a heterogeneous asset-pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 721-746, May.
- Giammarino, R.M. & Sappington, D.E.M., 1990.
"An Incentive Approach to Banking Regulation,"
367, California Davis - Institute of Governmental Affairs.
- Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June.
- Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
- Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, vol. 43(5), pages 1219-33, December.
- Agiza, H.N. & Elsadany, A.A., 2003. "Nonlinear dynamics in the Cournot duopoly game with heterogeneous players," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 320(C), pages 512-524.
- João A. C. Santos, 2000. "Bank capital regulation in contemporary banking theory: a review of the literature," BIS Working Papers 90, Bank for International Settlements.
- Fanti, Luciano & Gori, Luca, 2012.
"The dynamics of a differentiated duopoly with quantity competition,"
Elsevier, vol. 29(2), pages 421-427.
- Luciano Fanti & Luca Gori, 2011. "The dynamics of a differentiated duopoly with quantity competition," Discussion Papers 2011/121, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
- Fanti, Luciano & Gori, Luca, 2011. "The dynamics of a differentiated duopoly with quantity competition," MPRA Paper 33477, University Library of Munich, Germany.
- Dana, Rose-Anne & Montrucchio, Luigi, 1986. "Dynamic complexity in duopoly games," Journal of Economic Theory, Elsevier, vol. 40(1), pages 40-56, October.
- Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 2004.
"Is Fairly Priced Deposit Insurance Possible?,"
- Zhang, Jixiang & Da, Qingli & Wang, Yanhua, 2007. "Analysis of nonlinear duopoly game with heterogeneous players," Economic Modelling, Elsevier, vol. 24(1), pages 138-148, January.
- Franklin Allen & Douglas Gale, 2004.
"Competition and financial stability,"
Federal Reserve Bank of Cleveland, pages 453-486.
- Brock, W.A. & Hommes, C.H., 1996.
"A Rational Route to Randomness,"
9530r, Wisconsin Madison - Social Systems.
- Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
- Matutes, Carmen & Vives, Xavier, 1995.
"Imperfect Competition, Risk Taking, and Regulation in Banking,"
CEPR Discussion Papers
1177, C.E.P.R. Discussion Papers.
- Matutes, Carmen & Vives, Xavier, 2000. "Imperfect competition, risk taking, and regulation in banking," European Economic Review, Elsevier, vol. 44(1), pages 1-34, January.
- Xavier Vives, 2006. "Banking and Regulation in Emerging Markets: The Role of External Discipline," World Bank Research Observer, World Bank Group, vol. 21(2), pages 179-206.
- Tramontana, Fabio, 2010. "Heterogeneous duopoly with isoelastic demand function," Economic Modelling, Elsevier, vol. 27(1), pages 350-357, January.
- Dermine, J., 1986. "Deposit rates, credit rates and bank capital : The Klein-Monti Model Revisited," Journal of Banking & Finance, Elsevier, vol. 10(1), pages 99-114, March.
- Blum, Jurg & Hellwig, Martin, 1995. "The macroeconomic implications of capital adequacy requirements for banks," European Economic Review, Elsevier, vol. 39(3-4), pages 739-749, April.
When requesting a correction, please mention this item's handle: RePEc:pie:dsedps:2012/151. 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: ()
If references are entirely missing, you can add them using this form.