{
  "title": "Bank Competition and Financial Stability: A General Equilibrium Exposition",
  "publication": "IMF Working Papers, December 1, 2011",
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  "summary": "We study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Study of versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers.\n- Key comparative result:\n  - If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk.\n  - If the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal.\n- Results are stated to be empirically relevant and to carry significant implications for financial policy."
    },
    {
      "heading": "Main findings and analysis",
      "content": "- Model framework:\n  - General equilibrium banking model with moral hazard.\n  - Focus on returns to scale of intermediation technology used for screening and/or monitoring borrowers.\n- Comparative outcomes by technology type:\n  - Increasing returns to scale (or relatively efficient technology):\n    - Perfect competition is optimal.\n    - Supports the lowest feasible level of bank risk.\n  - Constant returns to scale (or relatively inefficient technology):\n    - Imperfect competition is optimal.\n    - Supports intermediate levels of bank risks.\n- Emphasis on empirical relevance and policy implications derived from the model results."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Policy should account for the returns-to-scale properties and relative efficiency of intermediation technology when assessing competition policy and financial stability trade-offs.\n- When intermediation technology exhibits increasing returns to scale or is relatively efficient:\n  - Policies that promote competition (toward perfect competition) can be welfare-enhancing and reduce bank risk.\n- When intermediation technology exhibits constant returns to scale or is relatively inefficient:\n  - Some degree of imperfect competition may be optimal and could entail accepting intermediate levels of bank risk.\n\n---\n\n Content in this bundle\n\n- Wp11295\n  - Wp11295 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp11295 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/bank-competition-and-financial-stability-a-general-equilibrium-exposition-25439"
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    "Authors: Marcella Lucchetta, Gianni De Nicolo",
    "Published: December 1, 2011",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781463927295.001",
    "Study of versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers.",
    "Key comparative result:",
    "Results are stated to be empirically relevant and to carry significant implications for financial policy.",
    "Model framework:",
    "Comparative outcomes by technology type:",
    "Emphasis on empirical relevance and policy implications derived from the model results.",
    "Policy should account for the returns-to-scale properties and relative efficiency of intermediation technology when assessing competition policy and financial stability trade-offs.",
    "When intermediation technology exhibits increasing returns to scale or is relatively efficient:",
    "When intermediation technology exhibits constant returns to scale or is relatively inefficient:",
    "**Wp11295**"
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