Regulatory Impacts on Banking Behavior & Financial Stability: Insights from a Mixed-Oligopoly Model
Eleni Dalla ()
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Eleni Dalla: Democritus University of Thrace
International Advances in Economic Research, 2025, vol. 31, issue 3, No 1, 125-137
Abstract:
Abstract The recent banking crisis has raised critical questions about financial stability and the effectiveness of banking regulation. This paper examines the regulatory implications for banking conduct within a Cournot-Bertrand mixed-oligopoly framework featuring differentiated banking products. The analysis considers two banks adopting asymmetric strategies: bank 1 operates under Cournot competition and determines quantities, while bank 2 follows Bertrand strategies and sets interest rates. Public intervention is modelled through minimum capital requirements imposed by regulatory authorities. The results indicate that stringent regulation weakens the transmission of monetary policy, while it enhances financial stability. Moreover, it decreases the optimal interest rate spread, with the outcome contingent on the specific bank strategies employed by banks. The findings highlight the pivotal role of banking conduct in shaping the consequences of regulatory and monetary policies. The calibration and simulation of the model for the Euro Area over the 2007–2023 period corroborate the theoretical insights, offering valuable implications for policy design.
Keywords: Regulation; Mixed-oligopoly; Product differentiation; Euro Area (search for similar items in EconPapers)
JEL-codes: E52 G21 G28 L13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:kap:iaecre:v:31:y:2025:i:3:d:10.1007_s11294-025-09932-6
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DOI: 10.1007/s11294-025-09932-6
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