Journal Article

Banking Competition and Market Efficiency

Marie-Odile Yanelle

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 64, issue 2, pages 215-239
Published in print April 1997 | ISSN: 0034-6527
Published online April 1997 | e-ISSN: 1467-937X | DOI:
Banking Competition and Market Efficiency

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This paper analyses competition among financial intermediaries in a set-up where financial intermediaries economize on duplicated monitoring (Diamond (1984)). We analyse two different games in which both direct trade and indirect trade are available. We show that in general equilibrium outcomes are inefficient, so that Diamond's efficiency result is fragile. Intermediation may increase rather than decrease transaction costs. Disintermediation may also be an equilibrium. We discuss the role played by the nonconvexities of banks' technology and that played by competition for deposits and loans.

Journal Article.  0 words. 

Subjects: Economics

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