IDEAS home Printed from https://ideas.repec.org/a/bap/journl/150103.html
   My bibliography  Save this article

Number of Banks, Public Debt, and Workable Competition

Author

Listed:
  • Erotokritos Varelas

    (University of Macedonia, 156 Egnatia street, 54006 Thessaloniki, GREECE)

Abstract

Based on a traditional approach to the behavior of a bank which lends both private and public sector, and utilizing a typical expression for public debt accumulation, this paper concludes that the optimality of the number and size of banks depends heavily on the course of the public debt, ceteris paribus. If the intergenerational dimension of the public debt is assumed away, fiscal consolidation presupposes a limited number of banks under normal only profit, a sort of quasicompetitive banking. In the presence of intergenerational considerations, fiscal consideration requires a few efficient banks experiencing perhaps positive profit, which is consistent with the notion of workable competition. Consequently, the pre-consolidation size distribution of banks is immaterial policy-wise.

Suggested Citation

  • Erotokritos Varelas, 2015. "Number of Banks, Public Debt, and Workable Competition," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 41-51, February.
    • Handle: RePEc:bap:journl:150103
    as

    Download full text from publisher

    File URL: http://www.bapress.ca/ref/ref-article/1923-7529-2015-01-41-11.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Xiaolan Zheng & Sadok El Ghoul & Omrane Guedhami & Chuck C Y Kwok, 2013. "Collectivism and corruption in bank lending," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(4), pages 363-390, May.
    2. Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 213-232.
    3. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
    4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    5. Joshua Kirkwood & Daehoon Nahm, 2006. "Australian Banking Efficiency and Its Relation to Stock Returns," The Economic Record, The Economic Society of Australia, vol. 82(258), pages 253-267, September.
    6. Boot, Arnoud W. A., 2003. "Restructuring in the banking industry withimplications for Europe," EIB Papers 5/2003, European Investment Bank, Economics Department.
    7. Allan Drazen, 2001. "The Political Business Cycle after 25 Years," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 75-138, National Bureau of Economic Research, Inc.
    8. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, April.
    9. Dean A. Worcester & Jr., 1957. "Why "Dominant Firms" Decline," Journal of Political Economy, University of Chicago Press, vol. 65(4), pages 338-338.
    10. Paolo Coccorese, 2002. "Competition Among Dominant Firms in Concentrated Markets: Evidence from the Italian Banking Industry," CSEF Working Papers 89, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    11. Gautam Gowrisankaran & Thomas J. Holmes, 2004. "Mergers and the Evolution of Industry Concentration: Results from the Dominant-Firm Model," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 561-582, Autumn.
    12. Tarishi Matsuoka, 2011. "Monetary Policy and Banking Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1109-1129, September.
    13. Katia Berti & Francisco de Castro & Matteo Salto, 2013. "Effects of fiscal consolidation envisaged in the 2013 Stability and Convergence Programmes on public debt dynamics in EU Member States," European Economy - Economic Papers 2008 - 2015 504, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    14. Bruce C. Cohen, 1970. "Deposit Demand and the Pricing of Demand Deposits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 523-529.
    15. White, L.J., 1996. "The Rise and Fall of Dominant Firms in the U.S. Automobile Industry: A Twice Told Tale," Working Papers 96-12, New York University, Leonard N. Stern School of Business, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karpetis Christos & Papadamou Stefanos & Varelas Erotokritos, 2017. "The Role of the Number of Banks on Debt Dynamics: Evidence from Eurozone Countries," Review of Economics, De Gruyter, vol. 68(1), pages 41-62, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Varelas, Erotokritos, 2014. "Bank Industry Structure and Public Debt," MPRA Paper 58437, University Library of Munich, Germany.
    2. Abbassi, Puriya & Iyer, Rajkamal & Peydró, José-Luis & Tous, Francesc R., 2016. "Securities trading by banks and credit supply: Micro-evidence from the crisis," Journal of Financial Economics, Elsevier, vol. 121(3), pages 569-594.
    3. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    4. Ramon Caminal, 2002. "Taxation of banks: A theoretical framework," UFAE and IAE Working Papers 525.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    5. Murinde, Victor & Rizopoulos, Efthymios & Zachariadis, Markos, 2022. "The impact of the FinTech revolution on the future of banking: Opportunities and risks," International Review of Financial Analysis, Elsevier, vol. 81(C).
    6. Maddaloni, Giuseppe, 2015. "Liquidity risk and policy options," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 514-527.
    7. Jochen Mankart & Alexander Michaelides & Spyros Pagratis, 2020. "Bank capital buffers in a dynamic model," Financial Management, Financial Management Association International, vol. 49(2), pages 473-502, June.
    8. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    9. Boubakri, Narjess & Cao, Zhongyu & El Ghoul, Sadok & Guedhami, Omrane & Li, Xinming, 2023. "National culture and bank liquidity creation," Journal of Financial Stability, Elsevier, vol. 64(C).
    10. Abbassi, Puriya & Iyer, Rajkamal & Peydró, José-Luis & Tous, Francesc R., 2016. "Securities trading by banks and credit supply: Micro-evidence from the crisis," Journal of Financial Economics, Elsevier, vol. 121(3), pages 569-594.
    11. Baltas, Konstantinos N. & Kapetanios, George & Tsionas, Efthymios & Izzeldin, Marwan, 2017. "Liquidity creation through efficient M&As: A viable solution for vulnerable banking systems? Evidence from a stress test under a panel VAR methodology," Journal of Banking & Finance, Elsevier, vol. 83(C), pages 36-56.
    12. Bouwman, Christa H. S., 2013. "Liquidity: How Banks Create It and How It Should Be Regulated," Working Papers 13-32, University of Pennsylvania, Wharton School, Weiss Center.
    13. Veronika Dolar & Césaire Meh, 2002. "Financial Structure and Economic Growth: A Non-Technical Survey," Staff Working Papers 02-24, Bank of Canada.
    14. Moheeput, Ashwin, 2008. "Financial Systems, Micro-Systemic Risks and Central Bank Policy : An Analytical Taxonomy of the Literature," The Warwick Economics Research Paper Series (TWERPS) 856, University of Warwick, Department of Economics.
    15. Marcella Lucchetta & Mr. Gianni De Nicolo, 2011. "Bank Competition and Financial Stability: A General Equilibrium Exposition," IMF Working Papers 2011/295, International Monetary Fund.
    16. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2004. "Smoothing sudden stops," Journal of Economic Theory, Elsevier, vol. 119(1), pages 104-127, November.
    17. Joshua Aizenman & Jaewoo Lee, 2007. "International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence," Open Economies Review, Springer, vol. 18(2), pages 191-214, April.
    18. Michiel Bijlsma & Wouter Elsenburg & Michiel van Leuvensteijn, 2010. "Four Futures for Finance; A scenario study," CPB Document 211.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    20. Edgar A. Ghossoub & Robert R. Reed, 2019. "Banking competition, production externalities, and the effects of monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(1), pages 91-154, February.

    More about this item

    Keywords

    Optimum number of banks; Public debt accumulation; Perfect vs. workable competition; Commercial bank seigniorage;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bap:journl:150103. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlson (email available below). General contact details of provider: http://www.bapress.ca .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.