Banks, industrial structure and monetary policy in transition economies

When industrial firms enjoy a significant degree of market power on the goods market and collect financial capital on a relatively competitive banking sector there is no reason why they should not use their market power also on the credit market. This phenomenon is obviously amplified when one deals with entirely “bank-oriented” banking systems, where financial markets and stock markets are not fully developed and their macroeconomic size is small compared to the one of the banking system. This kind of institutional configuration of the financial system has also characterized for a long time many Continental European financial systems, at least until the 1990’s. In transition economies the increasing openness in financial markets has, in many cases, created incentives for mergers and acquisitions. The purpose of this paper is to provide a very simple theoretical model describing a few stylized fact of the implications for the macroeconomy and for the transmission mechanism of monetary policy of an increase in the degree of concentration in the industrial sector.