The Industrial Organization of Banking: Bank Behavior, Market Structure, and Regulation

Acknowledgments
Contents
Chapter 1: The Banking Environment: Stocks, Flows, Information, and Risks
	Three Fundamental Areas Within the Industrial Organization of Banking
	Objectives
		Bank Behavior and the Structure of Banking Markets
		Bank Competition and Public Policy
		Assessing Bank Regulation
	The Bank Balance Sheet
		Bank Assets
		Loans
		Securities
		Cash Assets
		Trends in US Bank Asset Allocations
	Bank Liabilities and Equity Capital
		Large-Denomination Time Deposits
		Transactions Deposits, Savings Deposits, and Small-Denomination Time Deposits
		Purchased Funds and Subordinated Notes and Debentures
		Bank Capital
		Trends in Bank Liabilities and Equity Capital
	The Bank Income Statement
		Interest Income
		Noninterest Income
		Interest Expenses
		Expenses for Loan Loss Provisions
		Real Resource Expenses
		Bank Profitability Measures
	Asymmetric Information and Risks in Banking
		Adverse Selection
		Moral Hazard
		Risks on the Balance Sheet
		Credit Risk
		Market Risks
		Liquidity Risk
		Systemic Risk
	Trends in US Banking Industry Structure
		The Number of Commercial Banks
		Mergers, Acquisitions, and Concentration
Chapter 2: Modeling the Banking Firm Under Perfect Competition Versus Monopoly
	Identifying the Outputs and Inputs of a Bank
		What Banks Do: Alternative Perspectives on Bank Production
		Assessing the Economic Outputs and Inputs of Banks
	Banks as Portfolio Managers
		The Basic Bank Portfolio-Management Model
		Limitations of Portfolio Management Models
	Banks as Firms
		Banks´ Utilization of Real Resources and Implications for Relationship Between Loans and Deposits
		Implicit Resource Costs Within a Model of Perfectly Competitive Banks
	A Static Banking Model
		Perfectly Competitive Markets for Bank Assets
		Perfectly Competitive Markets for Bank Liabilities
		Evaluating Properties of a Static Perfectly Competitive Banking System
		Fundamental Dynamics in a Perfectly Competitive Banking Model and Implications for Portfolio Separation
		The Non-Implications of the Upsurge in Reserve Holdings for the Industrial Organization of Retail Banking Markets
	Monopolistic and Monopsonistic Banking Markets
		Monopolistic and Monopsonistic Interest Rate Determination in Bank Loan and Deposit Markets
		Social Losses due to Imperfect Competition in Banking
Chapter 3: Alternative Models of Imperfect Competition in Banking Markets
	Oligopoly and Oligopsony in Banking Markets
		Cournot-Style Quantity-Setting Rivalry
		Fixed Costs and Endogenous Rivalry Among Banks
		Structural Asymmetry of Loan and Deposit Markets: The Dominant-Bank Model
			A Dominant-Bank Model
			Strategic Entry Deterrence
		Extending the Dominant-Bank Model: Cournot Rivalry Among a Set of Dominant Banks
	Monopolistic and Monopsonistic Competition in Banking Markets
		A Chamberlin-Style Approach
		Monopolistic and Monopsonistic Competition with Horizontal Product Differentiation
	Bank Rivalry for Loans and Deposits with Horizontal and Vertical Product Differentiation
		Accounting for Simultaneous Horizontal and Vertical Quality Differentiation in a Banking Framework
		Fundamental Implications of Vertically Differentiated Quality Rivalry Among Banks
			Quality Rivalry and Internalized and Externalized Portfolio Interdependence
			Vertical Quality Rivalry and the Mutual Coexistence of Large and Small Banks
Chapter 4: The Industrial Economics of Banking
	The Structure-Conduct-Performance Paradigm in Banking
		Evaluating the Applicability of the SCP Paradigm to the Banking Industry
			Traditional SCP Evidence from Cross-Sectional Banking Data
			Dynamic Interest Rate Responses: Competition and Pass-Through Effects
		The Conduct and Relative Performances of Large and Small Banks
	Market Structure and Bank-Customer Relationships
		Basic Market-Structure Implications of Bank-Customer Relationships
		Evidence on Bank-Customer Relationships
			Determinants and Impacts of Bank-Customer Relationships
			Competition and Relationship Lending
	The Efficient Structure Theory and Banking Costs
		The Efficient Structure Challenge to the SCP Paradigm
			Banking Efficiency and Costs
			Evidence Regarding the Efficient Structure Theory
		Efficient Structure Theory and Bank Performance
	Endogenous Sunk Fixed Costs and Banking Industry Structure
		Endogenous Sunk Costs and Concentration
		Non-Price Competition in Banking: Implicit Deposit Rates versus Quality Rivalry
		Evidence on Advertising Outlays in the Banking Industry
		Endogenous Sunk Costs and the Banking Industry
Chapter 5: The Economics of International Banking
	The Growth of Global Banking
		The First Big Wave of Banking Globalization: The Colonial Period
		The Second Globalization Wave: The Most Recent Decades
		Fundamental Structural Elements Influencing Cross-Border Banking
			Distance
			Competitive Structure and Effects of Entry in Host-Country Banking Markets
			Bank Size and Entry Costs
			Idiosyncratic Elements and Prior Experience
	The Industrial Organization of Multinational Banking
		Determinants of the Overall Scope of Foreign Direct Investment in Banking
		Greenfield Investment versus Acquisitions of Host Nations´ Banks
	Real-Resource-Based Analyses of Cross-Border Trade in Banking Services
		Differences in Nation´s Capital-Labor Ratios and Efficiencies as Determinants of Cross-Border Banking
			The Structure of Niepmann´s Framework for a Closed Economy
			Extending Niepmann´s Setup to a Two-Country Environment
		An Intra-Industry Model of International Trade in Banking Services
			A Closed-Economy Setting with Differentiated Banking Services
			A Two-Economy Environment with Traded Banking Services
			Evidence on the Empirical Relevance of Trade-Based Theories of International Banking
Chapter 6: The Economics of Banking Antitrust
	Why Banks Merge
		Profit Enhancements from Mergers
		Diversification Benefits of Bank Mergers
	Assessing Loan and Deposit-Market Effects of Bank Consolidation
		Mergers in Initially Perfectly Competitive Banking Markets
		Mergers in Initially Imperfectly Competitive Banking Markets
		Evidence on the Consequences of Banking Consolidation
			Mergers and Market Power
			Evidence on Efficiency Gains from Banking Consolidation
	Banking Antitrust in Practice
		U.S. Bank Merger Guidelines
			The Relevant Market
			Merger Screening
		Evaluating the U.S. Bank Merger Guidelines
			Is the Official Relevant Banking Market Really Relevant?
				A Theory-Policy Mis-Match
				Geographical Arbitrariness in the Bank Merger Guidelines
			Do the Formal Guidelines Mis-Measure Market Power?
			Implications of Endogenous Sunk Fixed Costs
			Do Banking Consolidations Preclude Entry and Reduce Consumer Welfare?
			Rethinking Bank Merger Analysis
Chapter 7: Bank Competition, Stability, and Regulation
	Banks as Issuers of Demandable Debt
		The Diamond-Dybvig Model
			An Optimal Risk-Sharing Contract
			The Diamond-Dybvig Intermediation Solution and the Problem of Runs
		Evaluating the Diamond-Dybvig Analysis
	Banks as Screeners and Monitors
		Evidence on Bank Monitoring Activities
			Evidence from Announcement Effects
			Evidence from Firm Investment and Bond Yields
			Evidence from Syndicated Loans and Loan Sales
			Direct Evidence of Bank Monitoring Activities
		A Monitoring Model with Heterogeneous Banks
			Behavior of Monitoring and Non-monitoring Banks
			Loan-Market Equilibrium and Equilibrium Monitoring
	The Relationship between Banking Competition and Risks
		Perfect Competition and Bank Risks
			The ``Excessive Deposit Competition´´ Argument
			The Competition-Illiquidity Argument
			The Competition-Asset Risk Argument
		Market Power and Bank Risks: Theory and Evidence
			Competition and Risk: Theory
			Bank Size, Competition, and Risk: Evidence
	Deposit Insurance, ``Too Big to Fail´´ Doctrine, and the Basel Standards
		The Distorting Effects of Deposit Insurance
		The Impact of the Too-Big-to-Fail Doctrine
	Capital Regulation and the Three Pillars of the Basel Framework
Chapter 8: Capital Regulation, Bank Behavior, and Market Structure
	The Portfolio Management Perspective on Capital Regulation
		The Bank as a Competitive, Mean-Variance Portfolio Manager Facing Capital-Constrained Asset Portfolios
		Taking Deposit-Insurance Distortions into Account
		Explaining the Mixed Implications of Portfolio-Management Models
		Asset-Liability Management Under Capital Regulation
	An Incentive-Based Perspective on Capital Regulation
		Perfect Competition Models of Bank Capital Regulation
		Monopolistic Competition Models of Capital Regulation
	Demandable Debt, Bank Risks, and Capital Regulation
		Capital Regulation and Fragile Deposits
		Moral Hazard, Bank Lending and Monitoring, and Capital Regulation
	Capital Regulation and Bank Heterogeneities
		Adverse Selection and Capital Regulation
		Capital Requirements, Heterogeneous Banks, and Industry Structure
	Capital, Loan and Risk Adjustments, and Bank Performance
		Do Toughened Capital Requirements Actually Boost Bank Capital Ratios and Influence Aggregate Lending?
		Do Tougher Capital Regulations Yield Better Outcomes? Empirical Evidence
Chapter 9: Regulation and the Structure of the Banking Industry
	Public Interest Versus Public-Choice Perspectives on Bank Regulation
		Applying the Economic Theory of Regulation to the Banking Industry
		Assessing the Implications of the Economic Theory of Regulation
		A Generalized Perspective on Evaluating Bank Regulation
	The Political Economy of Banking Supervision Conducted by Multiple Regulators: Is a ``Race to the Bottom´´ Unavoidable?
		Regulatory Preferences and Bank-Closure Policies
		Competition Among Bank Regulators
			A Theory of Optimal Supervisory Choices of a Single Bank Regulator
			The Case of Competing Regulators
			A Supervisory Race to the Bottom?
			Is Greater Centralization of Regulatory Functions the Answer?
	Regulatory Compliance Costs and Industry Structure
		Assessing Banks´ Costs of Basel Compliance: Economies of Regulation?
			Rule-of-Thumb Estimates
			Estimates of Basel Compliance Costs Based on Survey Data
			``Economies-of-Basel´´: Scale Advantages in Basel Compliance?
			To What Extent Do Basel Compliance Costs ``Matter´´?
				Total Implementation Costs
				Effects of Basel Compliance on Ongoing Expenses
		Bank Regulation and Fixed Costs
			Regulatory Compliance Costs: A Missing Component?
			Implications of Endogenous Regulatory Sunk Fixed Costs
Chapter 10: Macroprudential Regulation and International Policy Coordination
	Systemic Risk
		Explaining and Measuring Systemic Risk
		Measuring Systemic Risk
	Doing Something About Systemic Risk: Macroprudential Policy
		Implementation of Macroprudential Policy
			Structuring Macroprudential Regulation
			Fire Sales and Stress Tests
			Liquidity Requirements
			Bank Taxes and Subsidies
		Pitfalls of Macroprudential Regulation
	International Regulatory Policy Coordination
		Essentials of the Regulatory Policy Coordination Problem
		Recent Research on International Coordination of Financial Regulatory Policies
		Can Impediments to International Bank Regulatory Coordination Be Surmounted?
References
Index