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Optimal capacity in the banking sector and economic growth

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  • Amable, Bruno
  • Chatelain, Jean-Bernard
  • De Bandt, Olivier

Abstract

The paper investigates, from the welfare and growth point of view, the determination of the optimal capacity of the banking system. For that purpose, we consider an overlapping generation model with endogenous growth. There is horizontal differentiation and imperfect competition in the banking sector. Macroeconomic shocks affect the return on capital and, together with the expectations of depositors, condition the stability of the banking sector. We specify to what extent deposit insurance may reduce instability and increase the number of deposits, welfare and growth. We also characterize the conditions under which excess banking capacities may appear and how their reduction may improve welfare.
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  • Amable, Bruno & Chatelain, Jean-Bernard & De Bandt, Olivier, 2002. "Optimal capacity in the banking sector and economic growth," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 491-517, March.
    • Handle: RePEc:eee:jbfina:v:26:y:2002:i:2-3:p:491-517
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    3. Cheng, Jin & Dai, Meixing & Dufourt, Frédéric, 2017. "Banking and sovereign debt crises in a monetary union without central bank intervention," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 142-151.
    4. L. Alam� & D. Conesa & A. Forte & E. Tortosa-Ausina, 2015. "The geography of Spanish bank branches," Journal of Applied Statistics, Taylor & Francis Journals, vol. 42(4), pages 722-744, April.
    5. Boikos, Spyridon & Bournakis, Ioannis & Christopoulos, Dimitris & McAdam, Peter, 2023. "Financial reforms and innovation: A micro–macro perspective," Journal of International Money and Finance, Elsevier, vol. 132(C).
    6. Jean- Bernard Chatelain, 2012. "Try again, macroeconomists," Chapters, in: Robert M. Solow & Jean-Philippe Touffut (ed.), What’s Right with Macroeconomics?, chapter 4, pages 90-109, Edward Elgar Publishing.
    7. Fedotenkov, Igor, 2018. "Population ageing and inflation with endogenous money creation," Research in Economics, Elsevier, vol. 72(3), pages 392-403.
    8. Hamada, Kojun & Kaneko, Akihiko & Yanagihara, Mitsuyoshi, 2018. "Oligopolistic competition in the banking market and economic growth," Economic Modelling, Elsevier, vol. 68(C), pages 239-248.
    9. PETRIA Nicolae, 2017. "Is Romania Overbanked?," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 69(6), pages 63-74, December.
    10. Gardó, Sándor & Klaus, Benjamin, 2020. "Overcapacities in banking: Measurement, trends and determinants," Economic Modelling, Elsevier, vol. 91(C), pages 819-834.
    11. Marshall, David A., 2002. "Financial crises and coordination failure: A comment," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 547-555, March.
    12. Fedotenkov, Igor, 2015. "Population ageing and prices in an OLG model with money created by credits," MPRA Paper 66056, University Library of Munich, Germany.
    13. repec:blg:reveco:v:69:y:2017:i:6:p:62-72 is not listed on IDEAS
    14. Michael Graff, 2005. "Is There an Optimum Level of Financial Activity?," KOF Working papers 05-106, KOF Swiss Economic Institute, ETH Zurich.
    15. Nielsen, Carsten Krabbe & Weinrich, Gerd, 2023. "Bank regulation and market structure," International Journal of Industrial Organization, Elsevier, vol. 88(C).

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    More about this item

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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