Date and Time: May 26th, 2017, 10:00 - 11:30 am
Room: A 101 in the Economics Building (Museum)
We model fixed costs in the banking industry, and we develop a framework in which the optimal number of banks is endogenously determined. We use the model to evaluate how ratcheting up the Basel regulatory regime is likely to influence both the competitive structure of banking markets and the overall quality of bank loans. A regulatory toughening involving higher capital requirements and increased fixed costs for banks reduces the degree of competition in banking markets. Furthermore, the weight of these changes falls more heavily on banks that choose to expend resources to monitor their loans to address loan losses.