How to make bankers richer: The Brazilian financial market with public and private banks
AbstractIn this paper, the literature on state-owned banks (SOB) and on the determinants of high spread and profitability of Brazilian banks are briefly reviewed. Then the paper proceeds to present the hypothesis that the way state-owned banks have interacted with public-owned banks in the market is partially responsible for such high profitability and interest rates spreads of Brazilian banking system. A model is presented to explain how this interaction can generate this profitability and spreads. The results also show that governments that stretch social policies are those that are most likely to raise profitability and spreads. Furthermore, the model also shows that if the government is generous with employees of state-owned banks, it will also contribute to the profit performance of private banks and high interest rates spreads. An empirical test for this hypothesis is developed. It tests if the expected profitability of privately owned banks rises when there is a reduction in the expected profits of state-owned banks. The results confirm the major hypothesis.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 48 (2008)
Issue (Month): 2 (May)
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Web page: http://www.elsevier.com/locate/inca/620167
Other versions of this item:
- Alexandre Rands, 2008. "How to Make Bankers Richer: The Brazilian Financial Market with Public and Private Banks," Working Papers 37, Datamétrica Consultoria Econômica, revised 2008.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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