Incentive-Based Lending Capacity, Competition and Regulation in Banking

Chiesa, Gabriella (2000) Incentive-Based Lending Capacity, Competition and Regulation in Banking. DOI 10.6092/unibo/amsacta/678.
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Abstract

This paper studies moral hazard in banking due to delegated monitoring in an environment of aggregate risk and examines its implications for credit market equilibrium and regulation, in a model where banks are price competitors for loans and deposits. It provides a rationale for an incentive-based lending capacity positively linked to the bank’s capital and profit margin, for an oligopolistic market structure wherever banks have market power, and for capital requirements. Social-welfare-maximizing capital requirements are lowered in recessions, are higher the more fragmented the banking sector, and are increased when anti-competitive measures are removed. In equilibrium banks earn excessive profits and credit may be rationed.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Chiesa, Gabriella
Keywords
bank-moral hazard capital requirements competition
Subjects
DOI
Deposit date
17 Jun 2004
Last modified
17 Feb 2016 14:00
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