Seminar:Bank Competition and Capital Accumulation in a Costly State Verification Model
Topic: Bank Competition and Capital Accumulation in a Costly State Verification Model
Speaker: Lisi Shi （Assistant Professor, Zhongnan University of Economics and Law）
Time: 15:00-16:30, April 29
Venue: WONG BING LAI CONFERENCE ROOM
This paper examines the implication of bank competition on the borrowing lending activities as well as other macroeconomics variables such as deposit and loan interest, capital accumulation. We present a dynamic general equilibrium model with banks engaged in Cournot competition in both the deposit and the loan market, under the problem of Costly State Verification. The paper shows that when the financial market becomes less concentrated, a higher volume of credits will be issued to entrepreneurs, leading to a higher capital stock level. However, banks demand more active monitoring, which aggravates the inefficiency. This paper further analyzed how the severity of information asymmetry, the share of entrepreneurs or the intertemporal elasticity of substitution affects the capital accumulation. The results show negative, positive and mixing effects respectively.