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The impact of market power and funding strategy on bank-interest margins

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  • Mohammed Amidu
  • Simon Wolfe

Abstract

This paper investigates the implications of market power and funding strategies for bank-interest margins, using a sample of 978 banks in 55 emerging and developing countries over an eight-year period, 2000-2007. We provide additional insight by examining the complex interlocking of three key variables that are important for regulators: the degree of market power, funding sources and bank performance. The results show that market power increases when banks use internal funding to diversify into non-interest income-generating activities. We also find that the high net-interest margins of banks in emerging and developing countries can be explained by the degree of market power, credit risk, and implicit interest payments. In addition, our results suggest that interest margins among banks with market power are significantly more sensitive to internally generated funds than they are to deposit and wholesale funding.

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  • Mohammed Amidu & Simon Wolfe, 2013. "The impact of market power and funding strategy on bank-interest margins," The European Journal of Finance, Taylor & Francis Journals, vol. 19(9), pages 888-908, October.
    • Handle: RePEc:taf:eurjfi:v:19:y:2013:i:9:p:888-908
    DOI: 10.1080/1351847X.2011.636833
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    Citations

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    Cited by:

    1. Jiajun XU & Kedi WANG & Xinshun RU, 2020. "Funding Sources of National Development Banks," Working Paper 035349fb-de1d-4334-8a86-8, Agence française de développement.
    2. Canan Yildirim & Adnan Kasman, 2015. "Bank Market Power and Non-Interest Income in Emerging Markets," Working Papers 930, Economic Research Forum, revised Jul 2015.
    3. Thomas Conlon & John Cotter, 2019. "Subordinate Resolution ‐‐ An Empirical Analysis of European Union Subsidiary Banks," Journal of Common Market Studies, Wiley Blackwell, vol. 57(4), pages 857-876, July.
    4. Mudeer A. Khattak & Buerhan Saiti & Shabeer Khan, 2023. "Does market power explain margins in dual banking? Evidence from panel quantile regression," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1826-1844, April.
    5. Nguyen, Thach V.H. & Nguyen, Thai Vu Hong, 2022. "How do banks price liquidity? The role of market power," Global Finance Journal, Elsevier, vol. 53(C).
    6. Jiajun XU & Kedi WANG & Xinshun RU, 2020. "Sources de financement des banques nationales de développement," Working Paper 035349fb-de1d-4334-8a86-8, Agence française de développement.
    7. Lavezzolo, Sebastián, 2020. "Political regimes and bank interest margins," Economic Systems, Elsevier, vol. 44(2).
    8. Mudeer Ahmed Khattak & Buerhan Saiti, 2021. "Banks' environmental policy and business outcomes: The role of competition," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 302-317, January.

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