Banks As Coordinators of Economic Growth

November 1, 2006

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Format: Chicago

Kenichi Ueda. Banks As Coordinators of Economic Growth, (USA: International Monetary Fund, 2006) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper formally identifies an important role of banks: Banks competitively internalize production externalities and facilitate economic growth. I formulate a canonical growth model with externalities as a game among consumers, firms, and banks. Banks compete for deposits to seek monopoly profits, including externalities. Using loan contracts that specify price and quantity, banks control firms' investments. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. I present a realistic institution that satisfies this condition.

Subject: Bank deposits, Banking, Competition, Deposit rates, Financial institutions, Financial markets, Financial services, Interbank markets, Loans

Keywords: Bank control, Bank deposits, Bank h, Bank-oriented financial system, Capital level, Competition, Deposit rates, Deviating bank-firm pair, Economic growth, Equilibrium strategy, Europe, Firm group, Interbank market, Interbank markets, Investment decision, Loan market, Loan rate, Loans, Manufacturing activity, Monopolist bank, Monopoly bank, Profit function, WP

Publication Details

Pages:

75
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/264
Stock No:

WPIEA2006264
ISBN:

9781451865240
ISSN:

1018-5941

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