We consider the joint effect of competition and deposit insurance on risk taking by banks when the riskiness of banks is unobservable to depositors. It turns out that the magnitude of risk taking depends on the type of bank competition. If the bank is a monopoly or banks compete only in the loan...

Is commercial banking in the traditional sense obsolete? Are we in fact witnessing the emergence of a fundamentally new era of finance and payments intermediation? These questions are raised in this paper. Instead of a formal analysis, an attempt is made here to approach these questions from a...

The rating-sensitive capital charges on credit risks under the new Basel Accord are likely to increase the volatility of minimum capital requirements, which may force banks to hold larger capital cushions in excess of minimum requirements. We analyse this claim on the basis of numerical...

Transparency regulation aims at reducing financial fragility by strengthening market discipline. There are however two elementary properties of banking that may render such regulation detrimental. First, an extensive financial safety net may eliminate the disciplinary effect of transparency...

The purpose of this paper is to assess whether the widely-held markup theory of interest rate determination, first put forth by Rousseas in the mid-1980s, is sufficiently robust empirically or whether one aspect of Keynesian liquidity preference theory, that which emphasizes the role of banks's...

On peut identifier un modele anglo-saxon de financement, ou le salaries consommateurs detiennent directement les actions des entreprise, et le modele europeen (continental) , ou ils detiennent des actifs bancaires (sans risque) et ou les entreprises sont financees par le credit. Dans le premier...

Creditors are often passive because they are reluctant to show bad debts on their own balance sheets. We propose a simple general equilibrium model to study the externality effect of creditor passivity. The model yields rich insights into the phenomenon of creditor passivity, both in transition...

Confirmation bias refers to cognitive errors that bias one towards one's own prior beliefs. A vast empirical literature documents its existence and psychologists identify it as one of the most problematic aspects of human reasoning. In this paper, we present three related scenarios where...

How do banks react to increased competition? Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking - and bank industry specialization. We empirically investigate the impact of...

Available studies on asymmetries in the monetary transmission mechanism within Europe are invariably based on macro-economic evidence: such evidence is abundant but often contradictory. This paper takes a different route by using micro-economic data. We use the information contained in the...