Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152837
Authors: 
Kaas, Leo
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 403
Abstract: 
The paper analyzes how the removal of barriers to entry in banking affect loan competition, bank stability and economic welfare. We consider a model of spatial loan competition where a market that is served by less efficient banks is opened to entry by banks that are more efficient in screening borrowers. It is shown that there is typically too little entry and that market shares of entrant banks are too small relative to their socially optimal level. This is because efficient banks internalize only the private but not the public benefits of their better credit assessments. Only when bank failure is very likely or very costly, socially harmful entry can occur.
Subjects: 
Bank competition
Entry deregulation
JEL: 
D43
D82
G21
Document Type: 
Working Paper

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