A Systematic Study of the Economics of Financial Institutions Based on the Maximum Profit Model

Abstract

Most of the existing theories for promoting financial deepening ignore the structural factors of banking markets in developing countries and do not include intermediation by banks in the systematic study of financial institutions. In this paper, we will introduce intermediate business in banking under the assumption of oligopoly in the banking market, analyze the profit maximization conditions of commercial banks, and show that developing countries can, through market monopoly power and the development of intermediate services of banks, to absorb deposits, maximize profits, and promote financial deepening without necessarily relying on the interest rate marketization. The conclusion in this paper has significant policy value for promoting financial deepening and sustainable development of financial institutions in developing countries.