Impact of Non-cooperative Oligopoly of the Banking System on Its Pro-cyclicality in the Czech Republic
Irrational behavior of banks in the form of excessive credit expansions or contractions, as appropriate, in the course of an economic cycle, together with the subsequent intoxication of bank assets, has become the subject of many controversial regulatory measures since the 1990s. The study simulates this phenomenon using the Bayesian game, which models environment of a conflict situation with incomplete information based on historical data of the past decade in the Czech Republic. The results imply that the dominant banking strategy is – irrespectively of the behavior of other players – the strategy with inadequate risk aversion, with excessive (inadequate) optimistic or pessimistic expectations, as appropriate, depending on the economic cycle stage. The reason for this behavior that contradicts the Pareto efficiency principle is the lack of information about the portfolio strategy of other players and their mutual rivalry in terms of market share increase. The conclusions of the study bring a solution in the form of open bank cartels (cooperative oligopoly) aimed at the coordination of their strategy. The objective of this measure would be the self-regulation of the banking sector credit policy, with acceptable profits and risks for banks and tolerable terms for debtors, reflecting the given economic cycle stage.
Year of publication: |
2014
|
---|---|
Authors: | Tison, David |
Published in: |
ACTA VSFS. - Vysoká Škola Finanční a Správní (VŠFS), ISSN 1802-792X. - Vol. 8.2014, 1, p. 47-63
|
Publisher: |
Vysoká Škola Finanční a Správní (VŠFS) |
Subject: | credit (loan) portfolio | pro-cyclical behavior | oligopoly | Bayesian game | Bayesian Nash equilibrium | mixed strategies |
Saved in:
freely available
Extent: | application/pdf |
---|---|
Type of publication: | Article |
Classification: | D43 - Oligopoly and Other Forms of Market Imperfection ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; G11 - Portfolio Choice ; G21 - Banks; Other Depository Institutions; Mortgages |
Source: |
Persistent link: https://www.econbiz.de/10011212033
Saved in favorites
Similar items by subject
-
Cournot meets Bayes-Nash : A discontinuity in behavior in finitely repeated duopoly games
Argenton, Cédric, (2022)
-
Cournot meets Bayes-Nash : a discontinuity in behavior in finitely repeated duopoly games
Argenton, Cédric, (2023)
-
Ambiguity and Social Interaction
Eichberger, Jürgen, (2007)
- More ...