Banking Competition and Macroeconomic Performance

Posted: 25 Aug 1998


This paper uses an equilibrium model to study the costs in terms of macroeconomic performance of imperfect competition in banking. The social welfare effects of increased bank competition are complicated and ambiguous in general, but measuring the consequences of increased bank competition with standard gauges of macroeconomic performance provides a clear conclusion: Increased bank competition raises the level of income and reduces the severity of business cycles. The quantitative effect on macroeconomic performance of less competition in banking can be large; for instance, an imperfectly competitive banking system can produce a worse macroeconomic outcome than if the economy had no banks.

JEL Classification: G28, E32

Suggested Citation

Smith, Richard Todd, Banking Competition and Macroeconomic Performance. Available at SSRN:

Richard Todd Smith (Contact Author)

University of Alberta ( email )

8-14 Tory Building
Edmonton, Alberta T6G 2H4
403-492-7898 (Phone)
403-492-3300 (Fax)

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