A Model of Competition in Banking: Bank Capital vs. Expertise

@article{Almazn2002AMO,
  title={A Model of Competition in Banking: Bank Capital vs. Expertise},
  author={A. Almaz{\'a}n},
  journal={Journal of Financial Intermediation},
  year={2002},
  volume={11},
  pages={87-121}
}
  • A. Almazán
  • Published 2002
  • Economics
  • Journal of Financial Intermediation
  • This paper presents a model of competition in the banking industry based upon the interplay of two factors: the level of capitalization of banks and their ability to monitor different types of projects (i.e., their expertise). In a setting of moral hazard with limited liability, banks must receive some rents to induce them to monitor projects diligently. The rents are decreasing in the banks' expertise and in the amount of capital that banks are able to commit to a project. This leads to a… CONTINUE READING
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