Bank Competition, Real Investments, and Welfare

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Shy , O & Stenbacka , R 2018 , ' Bank Competition, Real Investments, and Welfare ' , Journal of Economics , pp. 1-18 .

Title: Bank Competition, Real Investments, and Welfare
Author: Shy, Oz; Stenbacka, Rune
Contributor: Hanken School of Economics, Economics, Helsinki
Belongs to series: Journal of Economics
ISSN: 0931-8658
Abstract: We construct an overlapping generations growth model, where young consumers choose how to allocate resources among real investment (deposits), acquisition of bank ownership, and young-age consumption. At old age, consumers sell bank ownership and collect their bank deposits to support consumption. The model shows that an increase in banks’ market power stimulates bank profit and bank value, thereby raising the resources required for young consumers to acquire bank ownership. This causes a crowding-out effect on real investment, the magnitude of which is amplified with higher endowment growth rate and real investment return. Finally, we conduct a welfare analysis of the investment crowding-out effect.
Date: 2018-09-18
Subject: 511 Economics
Investment crowding-out
Size of the banking sector
Deposit market competition
Economic growth
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