Competition and Increasing Returns to Scale: A Model of Bank Size
نویسندگان
چکیده
This paper examines the causal e¤ects of bank size on banks survival, asset quality, and leverage. Two forces drive these e¤ects: increasing returns to scale derived from banksexpertise; and competition. The rst enables bigger banks to survive competition better, have higher asset-quality, and be more leveraged. It drives banks into a race for expansion. This race toughens competition between banks, which edges out small banks and may deteriorate all banksasset quality. Consequently, the banking industry will be dominated by a small number of highly leveraged banks. In this paper, nancial intermediation arises endogenously and coexists with direct nance.
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