Modeling the Decisions on Determining the Interest Rate on Deposits in Iranian Banking System by using Game Theory

Subject Areas : Business Strategy

Mehdi Memarpour ¹ , Ashkan Hafezalkotob ² , Mohammad Khalilzadeh ³ , Abbas Saghaei ⁴ , Roya Soltani ⁵

1 - Department of Industrial Engineering, Science and Research Branch, Islamic Azad University, Tehran, Iran
2 - College of Industrial engineering, South Tehran Branch, Islamic Azad University, Tehran, Iran
3 - Department of Industrial Engineering, Science and Research Branch, Islamic Azad University, Tehran, Iran
4 - Department of Industrial Engineering, Science and Research Branch, Islamic Azad University, Tehran, Iran
5 - Department of industrial Engineering, KHATAM University, Tehran, Iran

Received: 2022-05-29 Accepted : 2022-07-21 Published : 2022-03-01

Keywords: Stackelberg game, Monetary Policies, interest rate on deposits, Iranian banking System,

Abstract :

In this paper, the optimal interest rate on bank deposits is calculated according to monetary policy in the Iranian banking system. The interest rate on deposits is determined using the game theory and a Stackelberg game approach. The game leader is the Central Bank of the Islamic Republic of Iran, while the followers include three banks called A, B, and C. The leader of the game regulates its monetary policies in the form of three scenarios and the variables of "legal deposit award rate", "legal deposit ratio", and "rate of bank commission received" from the followers (the banking system). The follower players also determine the "interest rate on deposits" based on the strategy of the leader player. The overall results of this study indicated that in this Stackelberg game, the optimal scenario of the central bank involves "reducing the rate of commissions received" from the banking system and "increasing the legal deposit award rate" under conditions where the coefficient of the importance of the components of the utility function (social welfare) of this bank and the coefficient for facilities paid by this bank to the government, companies, banks, and governmental institutes are complete ( equalling to one), and that the scenario of changing the percentage (ratio) of the legal deposit is not optimal. Meanwhile, the optimal scenario of the follower players was reducing the interest rate on deposits in 2016. Also, the players of this game will be more profitable than their current situation if they choose Stackelberg's game.