The simple analytics of oligopoly banking in developing economies

Tarron Khemraj

MPRA Paper from University Library of Munich, Germany

Abstract: Previous studies have documented the tendency for the commercial banking sector of many developing economies to be highly liquid and be characterised by a persistently high interest rate spread. This paper embeds these stylised facts in an oligopoly model of the banking firm. The paper derives both the loan and deposit rates as a mark up rate over a relatively safe foreign interest rate. Then, using a diagrammatic framework, the paper provides an analysis of: (i) the distribution of financial surplus among savers, business borrowers and banks; (ii) exogenous deposit shocks; (iii) exogenous loan demand shocks; and (iv) the impact of interest rate control on financial intermediation.

Keywords: Oligopoly; commercial banks; developing economies; distribution (search for similar items in EconPapers)
JEL-codes: D30 E40 G21 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-ban and nep-com
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22266

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