Crises in competitive versus monopolistic banking systems

John H. Boyd, Gianni De Nicolo and Bruce Smith
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Gianni De Nicolo: https://carey.jhu.edu/faculty/faculty-directory/gianni-de-nicolo-phd

Proceedings, 2004, 487-509

Abstract: We study a monetary, general equilibrium economy in which banks exist because they provide inter-temporal insurance to risk-averse depositors. A \\"banking crisis\\" is defined as a case in which banks exhaust their reserve assets. This may (but need not) be associated with liquidation of a storage asset. When such liquidation does occur, the result is a real resource loss to the economy and we label this a \\"costly banking crisis.\\" There is a monetary authority whose only policy choice is the long-run, constant rate of growth of the money supply, and thus the rate of inflation. Under different model specifications, the banking industry is either a monopoly bank or a competitive banking industry. It is shown that the probability of a banking crisis may be higher either under competition or under monopoly. This is shown to depend on the rate of inflation.

Keywords: Bank competition; Financial crises (search for similar items in EconPapers)
Date: 2004
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Journal Article: Crises in Competitive versus Monopolistic Banking Systems (2004)
Working Paper: Crisis in Competitive Versus Monopolistic Banking Systems (2003)
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