Modelling the Effect of Bank Market Structure on Bank Market Equilibrium Based on Credit Risk and Liquidity Risk

This paper sets up an appropriate mathematical model to theoretically research the effect of bank market structure on bank market equilibrium with maximizing return as banks' decision objective,according to Lucchetta's idea that the market structure of banks represents research methodology and approach,under the hypothesis that credit risk and liquidity risk are exogenous variables which are not determined by banks themselves,through various combinations of credit risk and liquidity risk to express the bank market structure.The research results show that:(1) there exists bank market structures making bank market system work well and collapse respectively in bank market system with any concentration degree of credit risk and liquidity risk,and(2) different distributions of liquidity risk and different concentration degree of credit risk and liquidity risk have significantly different effects on the equilibrium of bank market system when variables of the bank market structure are in some interval.In order to make the bank market system work well,reasonable bank market structure must be maintained.