Market Power in Banking

Elena Carletti (), Agnese Leonello and Robert Marquez
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Elena Carletti: Centre for Economic Policy Research, London, United Kingdom
Agnese Leonello: European Central Bank, Frankfurt am Main, Germany
Robert Marquez: Graduate School of Management, University of California, Davis, California, USA

Annual Review of Financial Economics, 2024, vol. 16, issue 1, 233-251

Abstract: Bank market power, in both loan and deposit markets, has important implications for credit provision and for financial stability. This article discusses these issues through the lens of a simple theoretical framework. On the asset side, banks choose the quality and quantity of loans. On the liability side, they may be subject to depositor runs whenever they offer demandable contracts. This structure allows us to review the literature on the role of market power for credit provision and stability and also highlight the interactions between the two sides of banks’ balance sheets. Our approach identifies relevant channels that deserve further analysis, especially given the rising importance of bank market power for monetary policy transmission and the rise of the digital economy.

Keywords: digital economy; bank runs; balance sheet interactions; credit provision; monetary policy transmission (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1146/annurev-financial-082123-105257

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