Interconnection and Rivalry between Banks

This is an incomplete draft of a paper that will examine the competitive tension that arises when banks which compete for deposits provide “interconnecting” payment services to each other’s depositors. This draft presents a basic theoretical model and discusses some of the analysis that can be carried out and issues that can be addressed with the model. 1 This work was undertaken while the author was a visiting scholar at the Institute for Monetary and Economic Studies at the Bank of Japan. The views expressed herein are the author’s and do not represent the views of the Federal Reserve Bank of Richmond, the Federal Reserve System, or the Bank of Japan.