Monetary Policy Implications on Banking Conduct and Bank Clients’ Behavior

Abstract

Using a two-stage Cournot game with economies of scope, we examine the effects of monetary policy on the optimal bank behavior. Emphasis is on the way the interest rate spread is influenced by the minimum reserve requirements. It is demonstrated that the sign of this effect depends on the kind of economies of scope. Moreover, monetary policy implications for both the depositor’s and borrower’s behaviors are presented. Assuming an overlapping generation context, we prove that minimum reserve requirements affect the optimal levels of bank-client consumption through the corresponding equilibrium interest rates.