|Title||Three essays on switching costs in banking, the lending channel and entry in the banking industry|
My dissertation examines the magnitude of switching costs for bank-dependent borrowers, their relationship to macro-financial variables and their impacts on the effect of monetary policy. I also investigate the implication of bank entry and bank product differentiation on social welfare. The first essay explores the magnitude of bank-dependent borrowers switching costs arising from informational asymmetries and their relationship to macro-financial variables. I estimate the magnitude of borrowers switching costs in the banking sector across a large set of countries. I find switching costs are significant in the banking sector for all 31 countries under investigation and the magnitude of the costs for borrowers is systematically higher in developing countries than in developed countries. My results also show the indicators of informational asymmetries, such as bank penetration and market concentration in the banking sector, have strong impacts on switching costs. These costs are also likely to increase during a debt crisis. The second essay studies the relationship between switching costs for bank-dependent borrowers and the effectiveness of monetary policy through the bank lending channel. I apply the model of Kim, Kliger and Vale 2003) to provide structural estimates of switching costs in the market for bank credit in the United States and show that these costs have an important effect on the environment in which monetary policy is conducted, and that this effect is independent from that of financial constraints of the banking industry itself. Specifically, the higher switching costs, the larger the impact of monetary policy shocks on the real side of the economy. The third essay empirically quantifies the welfare implication of bank entry between 2000 and 2008. A distinctive feature of my framework is to predict the operating decision of single-market and multi-market banks using an equilibrium product type choice model. My estimates suggest firms entering the wrong location in the product space to be the major source of welfare loss. But product differentiation greatly improves social welfare in general. Without differentiation, the loss in consumer surplus is 27%–28% in 2000 and 20%–38% in 2008, and the loss in bank profit is 18–59% between 2000 and 2008.
|Subject||Banking, Business Administration,|
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