Essays on Banking Market Regulation

Abstract

This thesis employs a microeconomic framework to analyze the effects of two regulatory interventions—directed credit policies and the Basel Accords—within an imperfectly competitive banking market. The first essay examines how targeted credit mandates, imposed either on deposits or on total loan portfolios, influence banks’ allocation behavior, market outcomes, and funding structures. The results show that these policies generate contractionary effects on unregulated services and amplify spreads, particularly when banking technologies exhibit economies of scope. The analysis also proposes an alternative regulatory mechanism, based on subsidy–tax instruments, that achieves credit reallocation objectives while minimizing distortions and preserving allocative efficiency. The second essay investigates how capital regulation under the Basel framework affects volume loans, bank solvency, and lending spreads in the presence of credit risk. The findings reveal that the Basel index influences the insolvency threshold through its interaction with volume loans elasticity, and that capital requirements reduce credit volumes even without default premia. When banks internalize failure risk, the effects of regulation become stronger, altering volume loans more significantly. This outcome reflects a core regulatory challenge in emerging economies: preserving financial soundness while maintaining adequate credit provision. In this context, the way regulations is structured plays a critical role in shaping outcomes, as thoughtful design can help reconcile prudential goals with efficient credit allocation.