Bifurcations and complex dynamics in a banking duopoly model with macroprudential policy

We consider a banking duopoly model with a macroprudential policy in Indonesia called loan-to-deposit ratio-based reserve requirement (LDR-RR). The objective of the policy is to control the banking loans growth using a LDR-based penalty scheme that requires banks to save more money in the central bank to maintain their liquidity ratio. Following recent studies on banking models, we analyze a piecewise discrete-time model with two banks. We assume that the dynamics of the deposits follows the discrete logistic growth. Moreover, our model has two borders, hence we examine the resulting border-collision bifurcations. From the local stability analysis we find that, according to the parameter values, only the border-collision bifurcation or the flip bifurcation occurs. Finally, we perform several numerical simulations to confirm the stability analysis’ results. Our discrete dynamical system offers various possibilities of development for future research perspectives. •The admissible equilibria can also lose stability via border collision bifurcation.•We are able to exclude the case where the market is served by a unique bank.•The parameters of the LDR-RR play a key role in the lending activity of banks.•An excessive increase of the parameters of the LDR-RR leads to periods of instability.