Using a two-stage Cournot game with economies of scope, we examine the effects of monetary policy on the optimal bank behavior. Emphasis is on the way the interest rate spread is influenced by the minimum reserve requirements. It is demonstrated that the sign of this effect depends on the kind of economies of scope. Moreover, monetary policy implications for both the depositor’s and borrower’s behaviors are presented. Assuming an overlapping generation context, we prove that minimum reserve requirements affect the optimal levels of bank-client consumption through the corresponding equilibrium interest rates.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
The relative tables present all the value intervals of θ′(D S ). The mathematical investigation is necessary to determine the sign of the partial derivative ∂(r L * − r D * )/∂α when diseconomies of scope exist. However, this analysis confirms the respective signs that were discussed before, in the cases of economies of scope and no economies of scope.
Baltensperger, E. (1980). Alternative approaches to the theory of the banking firm. Journal of Monetary Economics, 6(1), 1–37.
Baumol, W. J., Panzar, J. C., & Willing, R. D. (1982). Contestable Markets and the Theory of Industrial Structure. New York: Harcourt Brace Jovanovich.
Cordella, T., & Datta, M. (2002). Intertemporal Cournot and Warlas Equilibria: An illustration. International Economic Review, 43(1), 137–153.
Ferreira, F., & Ferreira, F. (2010). Bertrand and Cournot Oligopolies when Rivals’ costs are unknown. AIP Conference Proceedings, 1293(1), 203–210.
Freixas, X., & Rochet, J. (2008). Microeconomics of Banking (2nd ed.). Cambridge: The MIT Press.
Hannan, T. H. (1991). Foundations of the structure-conduct-performance paradigm in banking. Journal of Money, Credit, and Banking, 23(1), 68–84.
Kasuya, M. (1986). Economies of scope: theory and application to banking. BOJ, Monetary and Economic Studies, 4(2), 59–104.
Klein, M. (1971). A Theory of the banking firm. Journal of Money, Credit, and Banking, 3(2), 205–218.
Molyneux, P., Lloyd-Williams, D. M., & Thornton, J. (1994). Competitive conditions in european banking. Journal of Banking and Finance, 18(3), 445–459.
Ohkawa, T., & Okamura, M. (2003). On the uniqueness of the welfare-maximizing number of firms under Cournot oligopoly. Bulletin of Economic Research, 55(2), 209–222.
Okuguchi, K. (1986). Labor-managed Bertrand and Cournot oligopolies. Journal of Economics, 46(2), 115–122.
Porras, A. (2008). The Benefits Of Leadership in the Banking Deposit Market: A Comparison Between Cournot and Stackelberg. Munich Personal RePec Archive, No 11351. http://mpra.ub.uni-muenchen.de/11351/
Santomero, A. M. (1984). Modeling the banking firm: a survey. Journal of Money, Credit, and Banking, 16(4), 576–602.
Sarkar, J., Gupta, B., & Pal, D. (1997). Location equilibrium for Cournot oligopoly in spatially separated markets. Journal of Regional Science, 37(2), 195–212.
Schoonbeek, L., Toolsema, L. A. (1999). Bank Behavior and the Interbank Rate in an Oligopolistic Market. SOM Research Reports, University of Groningen. http://irs.ub.rug.nl/ppn/190864370
Sherali, H., & Leleno, J. (1988). A mathematical programming approach to a Nash-Cournot equilibrium analysis for a two-stage network of oligopolies. Operations Research, 36(5), 682–702.
Suominen, M. (1994). Measuring competition in banking: a two-product model. Scandinavian Journal of Economics, 96(1), 95–110.
Theilen, B. (2007). Delegation and information sharing in Cournot duopoly. Journal of Economics, 92(1), 21–50.
Varelas, E. (2007). Methodological study of welfare of the bank-clients in the Yamazaki and Miyamoto model. Journal of Financial Management and Analysis, 20(2), 69–75.
Yamazaki, S., Miyamoto, H. (2004). A Note on Bank Behavior and Monetary Policies in an Oligopolistic Market. RePec, EconWPA – Industrial Organization, No 0408003. http://188.8.131.52/eps/io/papers/0408/0408003.pdf
About this article
Cite this article
Dalla, E., Karpetis, C. & Varelas, E. Monetary Policy Implications on Banking Conduct and Bank Clients’ Behavior. Atl Econ J 42, 427–440 (2014). https://doi.org/10.1007/s11293-014-9425-3
- Bank behavior
- Economies of scope
- Reserve requirements
- Substitution effect
- Income effect