The Role of Banks as Producers of Information: Can It Survive Competition and Cross-Selling Incentives?

Transcription

1 Rvw of Ecoomcs & Fac Submttd o 12/5/215 Atcl ID: Stfaa osc, Valta Mlca, ad Valta Sabato Th Rol of aks as Poducs of Ifomato: a It Suvv omtto ad oss-sllg Ictvs? Pof. Stfaa osc Datmt of Law, LUMSA Uvsty of Rom Va Pomo Mago 22, 192 Rom, ITALY E-mal: s.cosc@lumsa.t Pof. Valta Mlca Datmt of usss ad Maagmt, LUISS udo al Uvsty of Rom Val Romaa 32, 197 Rom, ITALY E-mal: vmlca@luss.t Pof. Valta Sabato osodc autho Datmt of Ecoomc, Poltcal Sccs ad Mod Laguags, LUMSA Uvsty of Rom Va Pomo Mago 22, 192 Rom, ITALY E-mal: v.sabato@lumsa.t Abstact: Ths a studs th mact of comtto o ldg bhavou ad coss-sllg ctvs of baks a satal comtto modl of th bakg scto wh ostvly valuatd loa alcats a mo lkly to buy oth svcs fom th ldg bak. Ovall ou modl suggsts that th mo comtto cass th loa makt, th mo th bakg systm s couagd to mov towads o-tadtoal actvts ad th lss cdt s fomato-basd. Ths udsd ffct of comtto th loa makt may hav cotbutd th ast to th xcssv sk-takg bhavou of Euoa baks ad could ham th stablty of th facal systm th futu. Kywods: ak-fm latoshs, Scg, oss-sllg, Satal comtto JEL lassfcatos: D43, D82, 21, L15 1. Itoducto Th Euoa bakg systm has dly chagd sc th Nts. Th dffuso of Ifomato ad ommucato Tchologs ITs has b accomad by a ocss of dgulato takg lac both Euo ad Utd Stats ad by a ocss of hamosato ad tatoalsato acoss Euoa Uo EU. Th us of ITs th bakg scto has facltatd th tatoalsato of baks actvty whl also affctg th dstbuto statgs of baks. Dgulato has favoud th tac of w actos challgg baks th tmdato actvty ad tsfyg th comttv ssu. aks hav b losg th latv sha of facal tmdato to sttutoal vstos vstmt fuds, suac comas ad so fuds. ~ 6 ~

2 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 Ths motat tchologcal ad sttutoal chags th bakg vomt hav b accomad by a sgfcat ocss of coctato, by dcasg tst mags ad by a sgfcat cas baks o-tst coms 1. Sval mcal studs hav vstgatd th cosucs of baks dvsfcato o sk, usg dfft mthodologs. otay to covtoal wsdom most of thm fd a ostv sgfcat latosh btw dvsfcato ad som dcatos of baks sk DYoug ad Rolad 21; Stoh 24; Ltt, t al. 28a; osc, t al. 29. Moov, th facal css showd that may baks do ot fom ffctvly th tadtoal ol of oducs of mfct fomato about boows though th scg actvty. Whl th s mcal vdc of casg comtto, casg dvsfcato ad casg sk th bakg scto, w a ot awa of ay thotcal modl assssg whth ad how ths ascts tlat. A mo comttv ldg makts ladg baks to dvsfy towads o-tadtoal coss-sllg actvts? What a th cosucs of coss-sllg o baks ctvs to sc loa alcats accuatly? Th am of ths a s to study th mact of comtto th ldg makt o cosssllg ad of th latt o baks scg ctvs. Oth studs hav vstgatd th mact of mo comtto th ldg makt o baks ctvs to oduc mfct fomato about th boows 2. Examl a gv by amal ad Matuts 22 ad Fxas 25 showg that mo comtto th bakg dusty ducs baks motog ffot ad Maov, t al. 21, toll ad Ptto 2 ad Hauswald ad Mauz 26 showg that mo comtto waks baks ctvs to sc boows. O th oost oot ad Thako 2 ad Yafh ad Yosha 21 ov that, wh comtto gows, th oftablty of makt fac falls mo tha that of latosh loas, ladg th bak to as latosh ldg at th xs of tasacto ldg. Vllas-oas ad Schmdt-Moh 1999 show that wth lss comtto baks may sc cdt alcats lss tsvly. Fom a x at sctv hg 1998 shows that th latosh btw th dg of comtto ad th scg ffot s ambguous, ddg o th dcso of baks to dtct good ad bad vstmt ojcts. W suggst a ossbl dct ffct of comtto o scg ctvs, va th cas th oftablty of svcs. I a ct a, osc, t al. 29 show that, a duooly modl of th bakg scto wth asymmtc fomato wh baks ovd loas ad sll svcs to boows, a cas coss-sllg ducs baks otmal scg ffot. W xtd that modl to allow fo satal comtto od to vstgat th ffct of comtto o th xctd oftablty of coss-sllg ad th ffct of coss-sllg o baks ctvs to oduc fomato about boows 3. W df coss-sllg as a budlg statgy basd o th assumto that, oc a loa alcat gts a loa, sh bcoms a wam custom,.. t s as to 1 Accodg to som studs baks hav sodd to th casd ottal comtto by cosoldatg th attmt to a ffccy gas s,.g., g, t al. 24. At th sam tm, accodg to som authos All ad Satomo 21; DYoug ad Rc 24, may baks hav actd to hgh comtto th ldg makt by wdg th ag of oducts thy off. Wllams ad Rajaguu 213 fd mcal vdc of a stabl latosh btw Austala baks f-com ad mag com, dcatg that cass f-com a bg usd to sulmt dcls mags. 2 Also s altt ad Hatma 23 fo a suvy o th ltatu o facal stablty ad comtto. 3 W buld o osc, t al. 212 that us th sam satal comtto modl od to tak to accout ossbl comlmtats btw scg ad coss-sllg actvts. ~ 61 ~

3 ISSNs: ; Acadmc Rsach t of aada sll h oth svcs dfft fom loas. All th loas a ackagd wth oth svcs that wll b bought by th custom wth a ostv obablty so that th latosh wth a boow has a maktg valu fo th bak ad th bak must cosd th cost of jctg loa alcats wh choosg th otmal scg ffot. Ud ths assumtos th oftablty of svcs cass wth th umb of ostvly valuatd loa alcats boows bak. Thfo th mact of comtto o th oftablty of coss-sllg dds o how comtto affcts th ulbum umb of baks th makt ad th umb of ostvly valuatd loa alcats. I ou sttg, by ducg xctd ofts fom ldg, mo comtto th ldg makt amog xstg baks lads to a mo coctatd bakg systm, as stadad Salo comtto modls, ad affcts th umb of ostvly valuatd boows a way that dds o th comosto ad htogty of th ojcts ool. Ovall w show that casg comtto th ldg makt may affct ostvly th baks xctd oftablty of sllg svcs, so that cosssllg may b a otmal sos to a mo comttv ldg makt. Futhmo coss-sllg has, also ths cotxt, a gatv mact o th otmal scg ffot. Th a s ogasd as follows. Scto 2 dscbs th ct tds th Euoa bakg systm. Scto 3 sts th basc st-u of th modl ad Scto 4 ulbum sults a dtmd. Scto 5 aalyss th ffct of comtto th ldg makt o th oftablty of coss-sllg. Fally Scto 6 daws th ma coclusos of th a. 2. Tasfomato of th Euoa akg Systm: Som Evdc Dug th last two dcads th Euoa bakg systm has go though a d tasfomato chaactsd by th followg ma facts: Th fomato voluto chagd th dstbuto statgs of baks makg gogahcal dstacs lss motat ad th vomt mo comttv. Th us of ITs th bakg scto has facltatd th tatoalsato of baks actvty whl also affctg th dstbuto statgs of baks. Euoa tal ak 28 dtfs th ma dvlomts th dstbuto statgs of baks favoud by th adoto of th w tchologs. Fst, bachs hav b dsgd tms of locato ad svcs offd to clts od to mak thm mo cost-ffct ad mo tgatd wth th w dstbuto chals usd by baks. Scod, lctoc chals, usd ot oly fo ovdg fomato ad tasacto svcs, but also fo th omoto ad sal of bakg oducts, hav gow adly. Thd, baks hav gadually casd th cooato wth thd ats, such as tals, facal comas ad facal svcs gous. Dug th last dcad Euoa baks hav xcd a sgfcat ocss of cosoldato 4, as dcatd by a substatal dcas th umb ad by th cas both th sha of total assts of th fv lagst cdt sttutos ad th Hfdahl dx fo cdt sttutos total assts. Ths ocss, documtd by data otd tabl 1, has b accomad by a dcas t tst mag most Euoa couts 5. 4 g 23 agus that ths ocss has b fostd by th adoto of ITs. 5 lasss ad Lav 24 fd that low ty bas, gat dgulato, th sc of fog baks ad a gat makt coctato a assocatd wth hgh comtto. Aml, t al. 24 ad Saza 22 fd that baks mgs casd coctato but also casd th dg of comtto. ~ 62 ~

4 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 Th wght of o-tst com o baks total com has casd sgfcatly. Rvu fom o-tst com actvts th ma Euoa couts 6 was 2% 1987 but 44% by 26 olt ad Humhy 28. Data otd tabl 1 show that also aft th facal css th wght of o-tst com o total com ottal Euo s ma couts mas hgh. v A tstg vdc mgg th coomc ltatu s that th cass fcom hav b accomad Euo by casd vaablty ofts ad wosg bak sk-tu tad-off. Schmd ad Walt 29 fd that bak com dvsfcato s valu-ducg. al, t al. 27 fd that ov-xosu to fs cass Euoa bak sk. Ltt, t al. 28a, 28b fd vdc of a gatv colato btw tst mag ad o-tst com fo 62 Euoa baks dug th od Th authos assum that baks us loas as a loss lad to xad th o-tst com va coss-sllg. Thy documt that Euoa baks acct low loa otfolo tus ad hgh loa sk to obta hgh commsso ad f-com. osc, t al. 29 show, usg baks balac sht data fo a saml of sx Euoa couts ov th od 21-26, that th hgh s th baks sha of commsso com a oxy fo baks dvsfcato to o-tst com, ad atcula svcs com th low s th ualty of baks loas. Tabl 1. akg stuctu dcatos Idcatos Italy may Fac Sa lgum I Ya 99 3,42 1, Numb of dt Isttutos Is 81 2, , Sha of total assts of th fv lagst Is % Hfdahl dx fo Is total assts ,65 23 agg fom to 1, Nt tst mag % ak s o-tst com/total com % Souc: E akg Stuctus Rot 24 ad 214; Wold ak, tvd fom FRED, Fdal Rsv ak of St. Lous, htts://sach.stlousfd.og/fd2/ss/, Mach 11, 215. Summasg, dug th last 25 yas th IT voluto has chagd th dstbuto statgs of baks makg gogahcal dstacs lss motat ad th vomt mo comttv. Euoa baks hav xcd a sgfcat ocss of cosoldato whl tst mags hav dcasd. Th wght of o-tst com o baks total com has s sgfcatly but ths sms to hav casd loa sk. I od to xla ths stylsd facts w dvlo a thotcal modl of baks ldg bhavou wh baks off loas ad also oth svcs dfft fom loas to th boows. W agu that baks hav movd towads o- 6 Sa, UK, Italy, may, Fac, Nthlads, Swd, Noway, lgum, Flad ad Dmak. ~ 63 ~

5 ISSNs: ; Acadmc Rsach t of aada tadtoal coss-sllg actvts as a otmal sos to casd comtto th ldg makt, whl wakg baks scg ctvs ad wosg th ualty of th otfolos of loas. I od to catu th ol of th fomato voluto th tasfomato of Euoa bakg systm w modl th ldg makt as a Salo satal comtto wh tasotato costs a th souc of baks makt ow. A dcas tasotato costs mak gogahcal dstacs lss motat ad th makt mo comttv. Aoth aalg fatu of stadad Salo comtto modls s that low tasotato costs low makt ow lad to mo coctatd makts. I ths st-u w vstgat th ffct of casd comtto low tasotato costs o ldg tst ats ad o th oftablty of coss-sllg actvty. 3. Th St-u of th Modl W buld o th modl of osc, t al. 212, wh a Salo modl of satal comtto a cotuum of boows fms s locatd ufomly wth dsty 1 ad baks a locatd symmtcally aoud a ut ccl. All th agts a sk-utal. Each boow has to fac a vstmt ojct wth o ut of loaabl fuds. Sc fms hav o vat fuds, thy boow fom a bak. Tavllg to baks s costly fo boows, whch s th souc of th baks makt ow. I atcula, ach fm, wh gatd a loa, cus a tasotato cost > fo ut of lgth. Fms ojcts gat a adom tu yz chaactsd by a adom bay vaabl yz{,z}. Pojcts ca b th good o bad, wh th obablty of yldg th ostv tu z of good ojcts s ad th obablty of succss of bad ojcts s <. Fms a fomd about th ualty of th ojcts but baks a ufomd, ad th tu z caot b obsvd o th bass of x at scg 7. Th ooto of good ojcts fo whch z > f, wh f s th sk-f tst at th oulato s θ,1] ad s commo kowldg. ad ojcts a domatd by th saf catal makt vstmt so that z< f ad a obsvatoally dstgushabl fom good os wthout som scg actvty. Sc fms a otctd by lmtd lablty, dmad fo cdt occus f th t xctd outcom fom boowg ad vstg s o-gatv 8 ad a fm j j=, locatd at dstac x,1/] fom a tycal bak wll aly to bak f ts t xctd outcom fom boowg fom bak s ot lss tha that fom boowg fom bak +1 o -1: 1 j z x j z x 1 wh dots th tst at offd to boows by bak 9 ad dots th tst at offd by bak s ghbou comttos baks +1 ad Ths assumto vts baks fom offg loa tst ats that duc boows slf-slcto. 8 oow j s atcato costat j z- -γx always holds fo suffctly hgh lvls of z. W assum that th tu z s lag ough so that both good ad bad boows wll always aly fo loas at th valg tst at. 9 aks caot dtm th locato of th loa alcats ad thfo o locato-basd cdscmato s fasbl. ~ 64 ~

6 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 odto 1 wth ualty gvs fm j s dffc codto btw bak ad bak +1 o -1: 1 j z x j z x 2 Sc th oulato th a θ good fms ad 1-θ bad fms, ach bak s dmad fo loas 2x s gv by: 1 L 3 wh +1- s th avag succss obablty th oulato. Th dmad fucto 3 stats that th low th tasotato cost fo ut of lgth ad th hgh th avag succss obablty, th hgh s th sstvty of loas dmad to tst at dfftals. Not that fo = w hav L =1/. aks hav accss to comttv catal makts, wh thy ssu bods at th sk-f tst at f. Each bak has a fxd cost of stallato K. Makt ow dvs fom tasotato costs: as t s usual satal modl of mfct comtto, tasotato costs ca b usd as oxy fo th dg of comtto th cdt makt. aks fac a fomatoal oblm th ldg dcso as thy do ot kow th xact ty of th ottal boows. Thy hav accss to a mfct scg tchology to dtct good ad bad ojcts. I atcula, th scg of loa alcats ylds a mfct sgal s{b,g} about boow ty ad w assum that baks acct boows wh thy obsv a good sgal ad jct boows wh thy obsv a bad sgal 1. Dotg by,1] th bak s ffot th scg actvty, w df =Pobg, as th acctac obablty fo tuly good boows.. th obablty of coctly obsvg a good sgal ad =Pobg, as th acctac obablty fo tuly bad boows.. th obablty of oously obsvg a good sgal. Accodgly, mfct scg gats a ty-i o wth obablty 1- ad a ty-ii o wth obablty. Th hgh s th bak s ffot scg, th hgh s th ablty of th bak to cogs good ojcts wth >,, ad bad ojcts wth <,. If baks do ot sc, thy do ot gt ay fomato byod th kow dstbuto of oulato so that = ad =1-, whl at tsty 1 th scg tchology s comltly fomatv so that 1=1 ad 1=. Fally scg s a costly actvty wth total cost ad magal cost. W assum that total cost of scg s stctly covx, wth >, >, =, ad lm 1 = 11. W dot by A+1- th slcto ato, masug th ctag of loa alcats that a ostvly valuatd by baks, ad thus bcom boows, ad by +1- th xctd ato of succssful boows, masug th ctag of loa alcats that bcom boows ad a succssful. Scg ca th cas o dcas th slcto ato ad th xctd ato of succssful boows ddg o th dstbuto of boow tys th oulato ad o th chaactstcs of th scg tchology. Th sha of succssful boows ov all boows Q/A s a masu of th ualty of th bak s loas ad sults to b casg th scg ffot. 1 Scg of loa alcats tycally taks th fom of cdtwothss tsts, that w modl h as hg Th latt assumto mls that =1 wll v b otmal fo th bak. ~ 65 ~

7 ISSNs: ; Acadmc Rsach t of aada Each bak s a multoduct fm sllg loas ad also a gv umb S of oth svcs. Fo ach svc oth tha loa th bak ays fxd ad vaabl costs. W assum that th vaabl cost s glgbl so that w ca cosd oly th fxd cost that s cludd th stallato cost K 12. Fms that a ot facd by baks buy svcs fom oth suls. Sc th a may scalsd sttutos sllg svcs, w assum that th bak s c-tak th svc makt, wh t slls th gv umb S of svcs at th gv c v 13. W dot by vs th gv com fom svcs. W also assum that th obablty to sll a svc to a boow s lag tha th obablty of sllg a svc to a o-custom whch, fo smlcty, w omals to zo. Sc w a tstd studyg th tacto btw scg ad coss-sllg, w assum that th xctd vu fom svcs s small ough that baks wll v b wllg to fac bad ojcts: z+ < f. Th a o fomato sygs btw scg ad coss-sllg actvts. Fally w assum that boows ay fo svcs also cas of dfault out of th loa 14. Th stuctu of th gam s as follows. I th fst stag baks smultaously st th ulbum scg ffot ad tst at so as to maxms xctd ofts, ad fms aly fo loas. I th scod stag baks sc loa alcats ad xtd cdt at th aoucd at to ostvly valuatd loa alcats boows. I th thd stag baks off svcs at th gv c v ad sll thm to boows wth obablty. Svcs, f bought, a ad at ths stag. Fally boows u th ojcts, tus a alsd, ad, cas of succss, th loa s ad off, othws th loa s dfaultd ad th bak wll cv othg. 4. Eulbum Rsults W focus o symmtc ulba whch all th baks choos th sam scg ffot ad tst at 15. Each bak sts th scg ffot ad th ldg tst at so as to maxms xctd ofts: K L 4 wh L s th dmad fucto 3 ad ad dot th ucodtoal xctd oftablts, cludg th coss-sllg actvty, fom ldg, sctvly, to good ad bad fms: 1 f f 5 12 I ths modl svcs a xogous. W ca, thfo, mag that th bak chooss x at th umb of svcs to sll ad cus th fxd costs of ogasg th svc actvty. 13 Sc th modl s amd at studyg how comtto affcts baks ldg bhavou though ts mact o baks ctvs to coss-sll svcs, w a ot cocd wth modllg th c of svcs o dtmg th otmal umb of svcs. I ths st-u th baks c-takg assumto, although ualstc, dos ot chag th sults of th modl. 14 W a awa that som facal svcs lk, fo xaml, udwtg actvty a statcotgt but ths s ot th cas fo may oth svcs. 15 S Adx A fo dvato ad ots of th ulbum sults. ~ 66 ~

8 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 Poosto 1. I th symmtc ulbum th otmal lvl of scg ffot satsfs: 1 ] 6 I uato 6 th sum of th fst two tms th sua backts s th magal bft of scg: gv th ucodtoal xctd oftablty fom ldg to good ad bad fms.. gv th tst at, scg cass th ooto of acctd good fms.. scg ducs ty-i o ad t cass th ooto of jctd bad fms.. scg ducs ty-ii o. I ulbum th magal bft of scg s ual to ts magal cost. Thfo, fom uato 6, th otmal scg ffot dds o th ucodtoal xctd oftablts of th good ad th bad boows ad o th tst at. v th tst at, scg ctvs cas as good boows bcom mo oftabl ad bad boows bcom lss oftabl. Th latosh wth th ldg at s, o th cotay, ambguous bcaus, as th tst at cass, both good ad bad boows bcom mo oftabl. If, as th tst at cass, th magal bft of scg fom acctg mo good boows s gat tha th magal bft fom jctg mo bad boows f >- 1- mlyg > - th otmal scg ffot s casg th ldg tst at. Poosto 2. I th symmtc ulbum th otmal ldg tst at satsfs: 1 I uato 7, gv th scg ffot, a casd tst at ducs xctd ofts sc th dmad fo loas dcass, whl t cass xctd ofts by th umb of succssful boows.. th boows who ay th loa. I ulbum th ovall ffct o xctd oft s zo. Fom uato 7 th otmal tst at s gv by: A f Thfo th otmal ldg at cass wth total tasotato costs /.. th hgh th bak s makt ow th hgh th tst at th bak sts, wth th cost of fuds fo succssful boow A f / ad th cost of scg fo succssful boow /, ad t dcass wth th avag succss obablty.. th lss sky th boows oulato th small th tst at th bak sts ad wth th xctd com fom svcs fo succssful boow A/. I ths famwok coss-sllg affcts scg ctvs t affcts th magal bft of scg ad thus th ualty of baks loas. osc, t al. 212 dmostat that, wh th a o fomato sygs btw scg ad coss-sllg actvts, coss-sllg ducs th otmal scg ffot, bcaus t maks good boows lss oftabl ad bad boows mo oftabl 17, ad thby t ducs th ualty of th loas as masud by th sha of succssful Ths cas mls that th xctd ato of succssful boows cass wth th scg ffot. 17 As th xctd com fom coss-sllg cass, fo gv scg ffot, th ldg tst at dcass so that th ucodtoal xctd oftablty of boows may th cas o dcas. osc, t al. 212 dmostat that th latt ffct o tst at vals fo good boows, whl th cas th xctd com fom coss-sllg s domat fo bad ~ 67 ~

9 ISSNs: ; Acadmc Rsach t of aada boows ov all boows Q. Ths sult s cosstt wth th vdc otd osc, t al. 29 that baks chaactsd by a hgh ooto of o-tst com a oxy fo th bak s coss-sllg actvty a also chaactsd by a lag ooto of mad loas a oxy fo th ualty of th facd ojcts ool. Th ulbum sults as statd Poostos 1 ad 2 assum that th umb of baks s gv.. thy hold th shot-u. I th log-u th umb of baks s dogous. y substtutg th otmal scg ffot ad tst at to xctd ofts ad uatg to zo, w dtm th ulbum umb of baks th makt 18. Poosto 3. I th log-u th ulbum umb of baks s gv by: 1 9 K wh ad dot th log-u ulbum lvls of scg ad tst at: 1 1 K 1/ 2 A f Euato 9 stats that ty th makt s ducd by a cas ofts. Fom uatos 9 ad 11, th ulbum umb of baks ca b wtt as: K Thfo th ulbum umb of baks cass wth tasotato costs ad th ulbum xctd ato of succssful boows ad t dcass wth th avag succss obablty ad stallato costs K. 1/ Th Imact of omtto th Ldg Makt o th Poftablty of oss-sllg atal makt lbalsato ad th dffuso of ITs th bakg scto advacd dustal couts hav ld to a cas comtto th ldg makt. W ask whth coss-sllg ca atly b a sos to ths cas comtto. Sc th st famwok th souc of baks makt ow s tasotato costs, w modl mo comtto th ldg makt as a dcas tasotato costs ad w study ts ffct o th otmal tst at, o th ulbum umb of baks ad fally o th oftablty of coss-sllg 19. Fom uato 11 th ffct of comtto as masud vsly by o th otmal tst at s gv by: boows. As a sult th ucodtoal xctd oftablty of good boows dcass, whl that of bad boows cass. S Adx fo a aalytcal dvato of ths ffct. 18 S Adx A. 19 S Adx fo th dvato of th sults. ~ 68 ~

10 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 d 13 d 2.. casg comtto th ldg makt dcasg tasotato costs ducs th ulbum tst at. Fom uato 9 th ffct of comtto o th ulbum umb of baks s gv by: d d 2.. casg comtto dcasg tasotato costs ducs th ulbum umb of baks th ldg makt. As show Adx, ths ffct follows fom th dcas th tst at, ducd by mo comtto, whch ducs ofts fo xstg baks th makt, thus lowg ty. Thfo casg comtto th ldg makt always ducs lss ty, va a ducto th tst at, makg th ldg makt mo coctatd. Th xctd oftablty of svcs th symmtc ulbum s gv by: A S K wh s gv by uato 12. Euato 15 shows that, gv th xctd vu fom svcs, th oftablty of svcs dds o th umb of boows bak A /, sc th bak has a ostv obablty of sllg svcs to ts boows, ad o stallato costs K fxd. I atcula th low s th ulbum umb of baks ad th hgh th slcto ato A th hgh s th xctd oftablty of coss-sllg. Hc th ffct of a cas comtto th ldg makt o th xctd oftablty of svcs dds o ts ffct o th ulbum umb of baks ad o th slcto ato. Fom uato 15 th ovall mact of comtto o th xctd oftablty of svcs ca b studd lookg at th sg of th followg dvatv: d A / d 1 da d A ~ 69 ~ d d wh d /d s gv by uato 14 ad da /d s gv by: da d A SO 2 Whth th slcto ato dcass o cass wth comtto dds o th scfc ots of th scg tchology, whch dtms also th sg of th latosh btw th otmal scg ffot ad th otmal tst at. Sc casg comtto ducs th otmal tst at, wh th otmal scg ffot s casg th ldg at >, th ducto scg ctvs th cass th slcto ato wh A < o ducs t wh A >. I th latt cas, as dmostatd Adx, th ducto th ulbum umb of baks th makt always vals o th ducto th slcto ato, so that mo comtto lads to a hgh umb of boows bak, thus casg th xctd oftablty of svcs. Wh th otmal scg ffot s dcasg th ldg at <, th cas bak s

11 ISSNs: ; Acadmc Rsach t of aada scg ctvs ducd by th low tst at always ducs th slcto ato A <, but, aga, th ducto th ulbum umb of baks sults to val o th ducto th slcto ato fo suffctly low lvls of tasotato costs. oollay Wh th otmal scg ffot s casg th ldg at > a cas comtto th ldg makt a dcas tasotato costs cass th xctd oftablty of svcs. Wh th otmal scg ffot s dcasg th ldg at < a cas comtto cass th xctd oftablty of svcs fo suffctly low lvls of tasotato costs. Poof. S Adx. I ths modl mo comtto th ldg makt amog xstg baks, by ducg xctd ofts fom ldg, lads to a mo coctatd bakg systm. omtto also affcts ldg th umb of ostvly valuatd boows a way that dds o th comosto ad htogty of th ojcts ool. Howv, fo suffctly low lvls of tasotato costs, a cas comtto lads to a hgh umb of ach bak s boows, thus casg th xctd oftablty of svcs. Ths sult suggsts that th tasto to a maktg-otato bakg documtd th ltatu s, at last at, a sos to casg comtto th ldg makt. Th modl also suggsts that th shft baks actvty towads o-tadtoal coss-sllg actvts s sosbl fo th cas loa sk sc, as osc, t al. 29 ad 212, coss-sllg waks baks scg ctvs, thus ducg th ualty of th otfolos of loas. I cocluso, ou sults show that makt stuctu affcts baks ldg bhavou ad baks ctvs to vst gathg fomato. I atcula a comttv bakg scto ovds cha cdt to ottal boows by sttg low ldg ats, whch ducs th umb of baks ad may cas th umb of boows bak. y dalg wth a lag umb of boows, baks may b wllg to hac th mo oftabl coss-sllg actvty ad vst lss scg tchology. 6. oclusos I ths a w fd that, fo suffctly low lvls of tasotato costs, a cas comtto lads to a mo coctatd bakg scto ad to a cas baks xctd oftablty fom offg svcs oth tha loas. Ths sult could hl xlag th tasfomato of th Euoa bakg systm of th last 25 yas sc th cas th dg of comtto bought by IT whch causd a fall tasotato costs has b followd by a cas both bakg coctato ad baks o-tst com. Th ostv latosh btw comtto ad coss-sllg ctvs may as som coc wh w cosd th gatv ffct of coss-sllg o baks otmal scg ffot. I fact ou modl also shows that th hgh s th com fom coss-sllg th low s th scg ffot ad th low s th ualty of th facd ojcts ool,.. th shft baks actvty towads th ovso of svcs dfft fom loas ducs th tadtoal ol of baks as ovds of fomato about boows. Ths s cosstt wth th mcal vdc osc, t al. 29 showg that th hgh s th sha of baks commsso com a oxy fo cosssllg actvts th hgh s th ato of mad loas ov total loas a oxy fo low ualty of baks loas. Ovall ou modl suggsts that th mo comtto cass th loa makt, th mo th bakg systm s couagd to mov towads o-tadtoal actvts ad th lss cdt s ~ 7 ~

12 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 fomato-basd. Ths udsd ffct of comtto th loa makt may hav cotbutd th ast to th xcssv sk-takg bhavou of Euoa baks ad could ham th stablty of th facal systm th futu. I th cotxt of ou modl th xstc of som lmts of tddc btw cosssllg ad scg ffot ca mak th tad-off btw thm lss lkly, as dmostatd by osc, t al y offg a boad st of facal oducts, a coss-sllg bak ca dvlo a wd latosh wth a fm that may b a souc of lvat fomato sco cooms: o th o sd, th bak las mo about th fm by obsvg ts bhavou wth sct to a lag umb of facal stumts, o th oth sd, th bak has th ootuty to us th fomato t collcts though scg oth bussss ath tha just ldg dcso s Satos Ovall, th facal scto havg custom-fomato avalabl fo multl uss may sgfcatly duc avag costs s Hg ad Satomo, 199 ad cas vus. aks lay a cucal Schumta ol fostg coomc dvlomt as thy oduc fomato about boows. Howv, t sms cutly that baks a ogssvly losg ths ol. Ou modl suggsts that ths may b causd also by th gatv ffct of coss-sllg o scg ctvs. Ivstgatg both thotcally ad mcally th lmts of tddc btw comtto ad coss-sllg, ad btw coss-sllg ad scg ffot, wll ma a motat aa of sach ad olcy focus. Rfcs 1] All, F., ad Satomo, A.M. 21. What Do Facal Itmdas Do?, Joual of akg ad Fac, 252: ] Aml, D., as,., Patta, F., ad Sallo,. 24. osoldato ad Effccy th Facal Scto: A Rvw of Itatoal Evdc, Joual of akg ad Fac, 281: ] al, L., D Jogh, O., ad Vad Vt, R. 27. Dos th Stock Makt Valu ak Dvsfcato?, Joual of akg ad Fac, 317: ] g, A.N. 23. Th Ecoomc Effcts of Tchologcal Pogss: Evdc fom th akg Idusty, Joual of Moy, dt ad akg, 352: ] g, A.N., om, S., oldbg, L., ad Wht, L. 24. Th Dyamcs of Makt Ety: Th Effcts of Mgs ad Acustos o Ety th akg Idusty, Joual of usss, 774: ] olt, W., ad Humhy, D. 28. ak omtto Effccy Euo: A Fot Aoach, DN Wokg Pa 194, Nthlads tal ak, Rsach Datmt, Ol] htt:// 7] oot, A.W.A., ad Thako, A.V. 2. a Rlatosh akg Suvv omtto?, Joual of Fac, 552: ] amal, R., ad Matuts,. 22. Makt Pow ad akg Falus, Itatoal Joual of Idustal Ogazato, 29: ] altt, E., ad Hatma, P. 23. omtto ad Facal Stablty: What s Scal about akg?, I: P. Mz Ed., Motay Hstoy, Exchag Rats ad Facal Makts: Essays Hoou of hals oodhat. Vol. 2, hltham, UK: Edwad Elga ] toll, N., ad Ptto, P.F. 2. Olgooly akg ad atal Accumulato, Wokg Pa Ss WP--12, Fdal Rsv ak of hcago, Ol] htt:// og/dgtal_assts/ublcatos/wokg_as/2/w2_12.df. ~ 71 ~

13 ISSNs: ; Acadmc Rsach t of aada 11] lasss, S., ad Lav, L. 24. What Dvs ak omtto? Som Itatoal Evdc, Joual of Moy, dt ad akg, 363: ] osc, S., Mlca, V., ad Sabato, V. 29. aks Dvsfcato, oss-sllg ad th Qualty of aks Loas, Th Machst School, 77s1: ] osc, S., Mlca, V., ad Sabato, V Th Tasto to a Maktg Otato akg: oss-sllg, Scg Ictvs ad Ifomato Sygs, aks ad ak Systms, 71: ] DYoug, R., ad Rc, T. 24. Notst Icom ad Facal Pfomac at U.S. ommcal aks, Facal Rvw, 391: ] DYoug, R., ad Rolad, K.P. 21. Poduct Mx ad Eags Volatlty at ommcal aks: Evdc fom a Dg of Total Lvag Modl, Joual of Facal Itmdato, 11: ] Euoa tal ak 28. EU akg Stuctus, Fakfut am Ma, may: E, Octob, Ol] htts:// 17] Fxas, X. 25. Dcostuctg Rlatosh akg, Ivstgacos Ecoómcas, 291: ] hg, T Scg, oss-od akg, ad th Allocato of dt, Rsach Ecoomcs, 524: ] Hauswald, R., ad Mauz, R. 26. omtto ad Statgc Ifomato Acusto dt Makts, Rvw of Facal Studs, 193: ] Hg, R.J., ad Satomo, A.M Th ooat Stuctu of Facal oglomats, Joual of Facal Svcs Rsach, 44: ] Ltt, L., Nys, E., Rous, P., ad Taaz, A. 28a. ak Icom Stuctu ad Rsk: A Emcal Aalyss of Euoa aks, Joual of akg ad Fac, 328: ] Ltt, L., Nys, E., Rous, P., ad Taaz, A. 28b. Th Exaso of Svcs Euoa akg: Imlcatos fo Loa Pcg ad Itst Mags, Joual of akg ad Fac, 32 11: ] Maov, M., Padlla, A.J., ad Pagao, M. 21. ollatal vsus Pojct Scg: A Modl of Lazy aks, RAND Joual of Ecoomcs, 324: ] Satos, J.A ommcal aks th Scuts usss: A Rvw, Joual of Facal Svcs Rsach, 141: ] Saza, P. 22. Th Effcts of akg Mgs o Loa otacts, Joual of Fac, 571: ] Schmd, M.M., ad Walt, I. 29. Do Facal oglomats at o Dstoy Ecoomc Valu?, Joual of Facal Itmdato, 182: ] Stoh, K.J. 24. Dvsfcato akg: Is Notst Icom th Asw?, Joual of Moy, dt ad akg, 365: ] Vllas-oas, J.M., ad Schmdt-Moh, U Olgooly wth Asymmtc Ifomato: Dfftato dt Makts, RAND Joual of Ecoomcs, 33: ] Wllams,., ad Rajaguu, Th hck o th Egg? Th Tad-off btw ak F Icom ad Nt Itst Mags, Austala Joual of Maagmt, 381: ] Yafh, Y., ad Yosha, O. 21. Idustal Ogazato of Facal Systms ad Statgc Us of Rlatosh akg, Rvw of Fac, 51-2: ~ 72 ~

14 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 ~ 73 ~ Adx A. Dvato ad ots of ulbum sults Th fst-od codtos fo th maxmsato oblm of bak a: 1 1 ] ] 1 A1 Th scod-od codtos a: ] 1 ud ou assumtos, >,, <, >, ad ] 1 ] 1 ] 2 2 fo suffctly low lvls of tasotato costs: 2 ] 1 ] 1 ] A2 Th soluto of systm A1 th symmtc ulbum gvs th otmal scg ffot as a fucto of th otmal ldg at = satsfyg uato 6 th txt, ad th otmal ldg at as a fucto of th otmal scg ffot = satsfyg uato 7 th txt wh +1-. I od to smlfy th otato df: SO ad 2 ] SO All th ulbum sults hold fo <, that s ualty A2 th symmtc ulbum. I od to study th latosh btw th otmal scg ffot ad th ucodtoal xctd oftablts of th good boows ad th bad boows, by totally dfftatg uato 6 th txt, w gt: SO d d A3.. th otmal scg ffot cass wth th ucodtoal xctd oftablty of good boows, ad

15 ISSNs: ; Acadmc Rsach t of aada ~ 74 ~ SO d d A4.. th otmal scg ffot dcass wth th ucodtoal xctd oftablty of bad boows. I od to study th latosh btw th otmal scg ffot ad tst at, by totally dfftatg uato 6 th txt, w gt: SO d d A5 Whth th otmal scg ffot cass o dcass wth th tst at dds o th sg of If th bfts fom acctg good boows a gat tha th bfts fom jctg bad boows - 1-, mlyg >, th otmal scg ffot s casg th tst at. I th ulbum maxmum xctd ofts a: K ] 1, A6 Euatg A6 to zo ad solvg by gvs th ulbum umb of baks th makt as uato 9 th txt. Log-u ulbum lvls of scg ffot ad tst at a dfd, sctvly, as: ] 1 A7 1 1 ] A8 Solvg A8 fo gvs uato 11 th txt. Adx. Th ffct of coss-sllg o scg ctvs Euato 6 th txt mlctly dfs as a fucto of : ],, 1 1 wh: ],, f ], 1, f, A f

16 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 ~ 75 ~ Totally dfftatg 1 ylds: SO d d 2 wh: A, ad I 2 th domato s ostv, sc < : 2 SO 5 I od to study th sg of th umato, ot that, fom 3 ad 4, coss-sllg affcts th ucodtoal xctd oftablts of good ad bad boows though a dct ffct th xctd com fom sllg svcs cass ad a dct ffct th tst at dcass. Fo good boows th dct ffct va th tst at s stog tha th dct ffct so that coss-sllg maks good boows lss oftabl: 1 A A 6 sc A / >1. Fo bad boows th dct ffct s stog tha th dct ffct so that coss-sllg maks bad boows mo oftabl: A A 7 sc A / <1. y substtutg 5, 6 ad 7 2 d /d sults to b gatv ud th assumtos of th modl >, < ad <,.. coss-sllg always waks scg ctvs bcaus t ducs th xctd oftablty of good boows ad cass that of bad boows. Sc th ualty of loas as masud by th ato of succssful boows ov all boows Q/A s casg th scg ffot, coss-sllg, by ducg scg ctvs, woss th ualty of th loa otfolo:

17 ISSNs: ; Acadmc Rsach t of aada dq d A ] 1 2 d d of th modl >, < ad > ad th abov sult d /d <. ud th assumtos Adx. Th ffct of comtto o th oftablty of coss-sllg I od to study th ffct of comtto o th otmal tst at, ot that uato 11 th txt xsss th otmal tst at as a fucto of tasotato costs ad th otmal scg ffot, whch s, tu, a fucto of : =, ]. Thus th ffct of comtto as masud by th aamt ca b comutd as: d d 1 1 wh th dct ffct of o ad th ffct of o, fom uatos 11 ad 12 th txt, a gv, sctvly, by: ad 2 3 ad th ffct of o s gv as A5: SO 4 Substtutg 2, 3 ad 4 1 ad aagg gvs uato 13 th txt, whch s ostv sc <. I od to study th ffct of comtto o th ulbum umb of baks, ot that uato 9 th txt xsss th ulbum umb of baks as a fucto of th otmal ldg at ad th otmal scg ffot: =,. Thus th ffct of o ca b comutd as: wh th atal ffct of o s gv by: d d d 5 d d d K 6 ~ 76 ~

18 Rvw of Ecoomcs & Fac, Volum 5, Issu 4 Sc th atal ffct of o s ull, th scod tm 5 s zo,.. th ffct of comtto o th ulbum umb of baks gos though oly th ffct o th tst at. Substtutg uatos 13 th txt ad 6 5 gvs uato 14 th txt, whch s ostv sc <. I od to study th ovall mact of comtto o th xctd oftablty of svcs w look at th ffct of a dcas tasotato costs o th umb of boows bak, comutd as uato 16 th txt, wh d /d s gv by uato 14 th txt ad da /d s: da d A 7 d d I 7, sc th ffct of th umb of baks o th otmal scg ffot s ull, da /d s gv by: da d 8 d d wh / s gv by 4 ad d /d s gv by uato 13 th txt. Substtutg 7 gvs uato 17 th txt. Substtutg uatos 14 ad 17 uato 16 th txt ylds: d A / d 2 ] 2 A SO A 9 whch s gatv.. a cas comtto th ldg makt cass th umb of boows bak, thby casg th oftablty of coss-sllg wh th tm th suad backts s gatv. Ths s always th cas wh A ad hav oost sg. Wh A ad hav th sam sg both ostv o gatv, t s stll gatv wh: SO A A R 1 odto 1 s satsfd wh th otmal scg ffot s casg th ldg at > ad th slcto ato s casg th scg ffot A >, sc < < R, but, wh th otmal scg ffot s dcasg th ldg at < ad th slcto ato s dcasg th scg ffot A <, R < mls that th s a ag of lvls of tasotato costs R < < fo whch as dcass comtto cass A / dcass. Howv, as tasotato costs cotu to dcas < R, A / cass aga. ~ 77 ~