Comparative advantages in banking and strategic specialization and diversification
Abstract This paper shows how banks specialize in different activities when they start with different comparative advantages. The possibility of wrong specialization is shown in a Cournot game with convexities. Different resolution mechanisms are discussed. With risk averse financial intermediaries, excessive diversification is shown to be a problem. Financial innovation like credit derivatives and securitization can mitigate the problem and result in optimal specialization and diversification patterns.
|Date of creation:||31 Dec 2002|
|Date of revision:|
|Publication status:||Published in Finance, Trade and Development NA.NA(2004): pp. 1-26|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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- Sherrill Shaffer, 1989. "Pooling intensifies joint failure risk," Working Papers 89-1, Federal Reserve Bank of Philadelphia.
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