Modelling banks’ lending and deposits using the aggregate equilibrium approach

• We use the aggregate equilibrium approach (AEA) framework to demonstrate how different degrees of bank competition on lending and deposits markets affect market efficiency, bank profitability, and social welfare. We explain why an interbank market among banks with different costs for producing loans and deposits improves the efficiency of financial intermediation. Banks with imbalances in their loans could benefit by borrowing from banks with surplus of deposits. In the presence of an interbank market for lending and deposits, we show that banks’ aggregate profits increase without affecting the surplus of banks’ customers.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business (hsv//eng)

Nyckelord

Interbank market

banks

financial intermediation

competition

aggregate equilibrium approach

Publikations- och innehållstyp

vet (ämneskategori)

kon (ämneskategori)