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Market power in banking

Author

Listed:
  • Carletti, Elena
  • Leonello, Agnese
  • Marquez, Robert

Abstract

Bank market power, both in the loan and deposit market, has important implications for credit provision and for financial stability. This article discusses these issues through the lens of a simple theoretical framework. On the asset side, banks choose the quality and quantity of loans. On the liability side, they may be subject to depositor runs whenever they offer demandable contracts. Thisstructure allows us to review the literature on the role of market power for credit provision and stability and also highlight the interactions between the two sides of banks’ balance sheets. Our approach identifies relevant channels that deserve further analysis, especially given the rising importance of bank market power for monetary policy transmission and the rise of the digital economy. JEL Classification: G01, G21, G28

Suggested Citation

  • Carletti, Elena & Leonello, Agnese & Marquez, Robert, 2024. "Market power in banking," Working Paper Series 2886, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242886
    Note: 2292323
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    References listed on IDEAS

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    More about this item

    Keywords

    balance sheet interactions; bank runs; credit provision; digital economy; monetary policy transmission;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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