Competition Policy for Modern Banks

May 23, 2013

Preview Citation

Format: Chicago

Lev Ratnovski. Competition Policy for Modern Banks, (USA: International Monetary Fund, 2013) accessed September 20, 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

Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.

Subject: Bank soundness, Banking, Commercial banks, Competition, Crisis management, Financial crises, Financial institutions, Financial markets, Financial sector policy and analysis, Tax incentives

Keywords: Bank, Bank competition policy, Bank lending, Bank merger, Bank soundness, Banks, Commercial banks, Competition, Competition Policy, Core bank activity, Crisis management, Europe, Lending, Macroprudential Policy, Market structure, Systemic Risk, TBTF, TBTF bank, Value, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/126
Stock No:

WPIEA2013126
ISBN:

9781484354728
ISSN:

1018-5941

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