How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America

How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America

Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors' market structures in developing countries. The authors analyze the impact of these factors on Latin American bank spreads duri...

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Bibliographic Details
Main Authors:	Martinez Peria, Maria Soledad, Mody, Ashoka
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, D.C. 2013
Subjects:	FOREIGN BANKS FINANCIAL INTERMEDIATION INTEREST RATES SPREAD SPILLOVER EFFECTS INTEREST MARGINS MARKET CONCENTRATION INTEREST INCOME PAYMENTS MERGERS & ACQUISITIONS LIQUID ASSET PORTFOLIOS ACCOUNTING ACCOUNTING STANDARDS ACCOUNTS ADMINISTRATIVE COSTS BALANCE SHEET BANK ASSETS BANK CLOSURES BANK CREDIT BANK LENDING BANK LENDING RATES BANK LIQUIDITY BANK LOANS BANK REGULATION BANKING AUTHORITIES BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BONDS CAPITAL MARKETS CONSOLIDATION COST OF CAPITAL CREDIT RISK DEALERS DEFAULT RISK DEMONSTRATION EFFECTS DEPOSITS DEVELOPMENT ECONOMICS ECONOMICS EMPIRICAL EVIDENCE FINANCIAL CRISES FINANCIAL ECONOMICS FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL MARKET LIBERALIZATION FINANCIAL NEEDS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN ENTRY INCOME INFLATION INTEREST RATE INTERNATIONAL FINANCIAL STATISTICS LATIN AMERICAN LIQUID ASSETS MARGINS MONETARY POLICY MONEY MARKET NET WORTH NEW ENTRANTS OFFSETTING OPERATING COSTS POLICY RESEARCH PRIVATE BANKS PROFITABILITY PUBLIC BANKS PURCHASES QUANTITATIVE ANALYSIS RESERVE REQUIREMENTS SAVINGS SECURITIES FOREIGN BANKS
Online Access:	http://documents.worldbank.org/curated/en/2004/02/5296843/foreign-participation-market-concentration-impact-bank-spreads-evidence-latin-america http://hdl.handle.net/10986/14205

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Summary:	Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors' market structures in developing countries. The authors analyze the impact of these factors on Latin American bank spreads during the late 1990s. Their results suggest that foreign banks were able to charge lower spreads relative to domestic banks. This was more so for de novo foreign banks than for those that entered through acquisitions. The overall level of foreign bank participation seemed to influence spreads indirectly, primarily through its effect on administrative costs. Bank concentration was positively and directly related to both higher spreads and costs.