A macroeconomic theory of banking oligopoly

Abstract

We study the behavior and macroeconomic impact of oligopolistic banks in a tractable environment with micro-foundations for money and banking. Our model features oligopolistic banks, which resembles the structure of the banking sector observed in most advanced economies. Banks interact strategically where they compete against each other in terms of the volume of loans to make. We …nd that it is welfare-maximizing to have the banking sector as oligopolistic, i.e., to have a small number of large banks. In addition, moderate in ‡ation improves welfare because it helps to ease congestion in the banking sector.

The Impact of Financial Development and Green Finance on Regional Energy Intensity: New Evidence from 30 Chinese Provinces

“…Furthermore, under the current situation of China's financial development, state-owned commercial banks have an oligopolistic tendency and form collusion among industries [35,36], which hinders the improvement of the utilization efficiency of financial resources and causes capital mismatch to a certain extent. In addition, the long-term absolute high market share of state-owned commercial banks in the financial market does not come from market choice but depends more on the will of the government [37]. The government's distortion of the financial market is behind this oligopoly.…”

Oligopoly Banking, Risky Investment, and Monetary Policy

“…Chiu et al (2019) extend this model by giving banks market power on the liabilities' side, and show that the introduction of central bank digital currencies can be welfare improving if it reduces banks' market power. Dong et al (2017) was the first paper to study oligopolistic banking competition in this literature, but in their model, banks do not create liquid assets and extend loans to entrepreneurs as in our paper. Instead, they intermediate funds as in Berentsen et al (2007).…”

Money, credit and imperfect competition among banks

“…Altermatt and Wang (2021) show how an oligopolistic banking market structure affects both the monetary policy transmission mechanism and bank defaults. Dong, Huangfu, Sun and Zhou (2021), endogenize the number of banks. Chiu, Davoodalhosseini, Jiang and Zhu (2019) focus on oligopolistic competition on the deposit side to study the effects of central bank digital currency.…”