Macroprudential regulatory policies with a dominant-bank oligopoly and fringe banks

Enzo Dia and David VanHoose

Journal of Economics and Business, 2023, vol. 124, issue C, No S0148619523000115

Abstract: This paper develops a model in which a handful of dominant banks mutually engage in head-to-head rivalry while acting as loan-quantity-setting leaders vis-à-vis numerous fringe banks. Under the most likely calibration of parameters governing behavior of the two groups, we find that increases in capital requirements substantially reduce equilibrium loan volumes and raise the market retail loan rate, while increases in tax rates tend to raise the market loan rate but not in a way that significantly alters aggregate lending. Key parameters influencing outcomes in alternative calibrations are the number of dominant banks and the market loan demand elasticity.

Keywords: Market power; Loan pricing; Capital requirements; Bank taxes (search for similar items in EconPapers)
JEL-codes: E43 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:124:y:2023:i:c:s0148619523000115

DOI: 10.1016/j.jeconbus.2023.106118

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