The role of credit market competition on lending strategies and on capital accumulation

Nicola Cetorelli

No WP-97-14, Working Paper Series, Issues in Financial Regulation from Federal Reserve Bank of Chicago

Abstract: This paper examines the role of credit market competition in the dynamic of capital accumulation. It is shown that the lending relationship problem which seems to characterize competitive credit markets can have negative repercussions for capital accumulation. In contrast, monopoly power in banking can be beneficial for growth. A monopolist bank may lower the equilibrium quantity of credit, but it allows a better allocation of credit supply. This result reconciles with the available empirical evidence and suggests a positive role for monopoly power in banking, especially for developing countries.

Keywords: Credit; Capital (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (29)

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