Financial Intermediation, Competition, and Risk: a General Equilibrium Exposition
39 Pages Posted: 19 Mar 2010
There are 3 versions of this paper
Financial Intermediation, Competition, and Risk: A General Equilibrium Exposition
Financial Intermediation, Competition, and Risk: A General Equilibrium Exposition
Date Written: March 1, 2010
Abstract
We study a simple general equilibrium model in which investment in a risky technology is subject to moral hazard and banks can extract market power rents. We show that more bank competition results in lower economy-wide risk, lower bank capital ratios, more efficient production plans and Pareto-ranked real allocations. Perfect competition supports a second best allocation and optimal levels of bank risk and capitalization. These results are at variance with those obtained by a large literature that has studied a similar environment in partial equilibrium, they are empirically relevant, and carry significant implications for financial policy.
Keywords: General Equilibrium, Bank Competition, Market Power Rents, Risk
JEL Classification: D5, G21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Bank Risk Taking and Competition Revisited
By John H. Boyd and Gianni De Nicolo
-
Liberalization, Moral Hazard in Banking and Prudential Regulation: Are Capital Requirements Enough?
-
Competition and Financial Stability
By Franklin Allen and Douglas M. Gale
-
Capital Requirements, Market Power and Risk-Taking in Banking
-
Size, Charter Value and Risk in Banking: An International Perspective
-
Competition and Stability: What's Special About Banking?
By Elena Carletti and Philipp Hartmann
-
Bank Risk-Taking and Competition Revisited: New Theory and New Evidence
By John H. Boyd, Gianni De Nicolo, ...
-
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
By Thorsten Beck, Asli Demirgüç-kunt, ...