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Market Power and Interest Rate Spreads in the Caribbean

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  • Winston Moore
  • Roland Craigwell

Abstract

This paper investigates the determinants of the high bank spreads observed in the Caribbean over the financially liberalised period of the 1990s. A theoretical model is formulated and tested using panel data. Among other factors, market power is found to be one of the main influences on these large spreads. A major conclusion of the paper is that to reduce interest rate spreads, alternatives to commercial banks' loans should be encouraged, and the recent move to impose monetary regulations on non-banks be discouraged.

Suggested Citation

  • Winston Moore & Roland Craigwell, 2002. "Market Power and Interest Rate Spreads in the Caribbean," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(4), pages 391-405.
    • Handle: RePEc:taf:irapec:v:16:y:2002:i:4:p:391-405
    DOI: 10.1080/02692170210161138
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    References listed on IDEAS

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    1. Mr. Abdourahmane Sarr, 2000. "Financial Liberalization, Bank Market Structure, and Financial Deepening: An Interest Margin Analysis," IMF Working Papers 2000/038, International Monetary Fund.
    2. Kevin Greenidge & Wendell Mcclean, 2000. "The impact of regulatory measures on commercial bank interest rates: A micro analysis of the Barbados case," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(3), pages 544-556, August.
    3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    4. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 49-61, February.
    5. Anston Rambarran, 2000. "Bank Competition and Contestability in Trinidad and Tobago: a Case for Further Commitments Under the GATS," Money Affairs, CEMLA, vol. 0(1), pages 17-35, January-J.
    6. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
    7. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-644, November.
    8. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Winston Ricardo Moore, 2010. "Capital account liberalization and commercial bank interest rate margins," Applied Financial Economics, Taylor & Francis Journals, vol. 20(21), pages 1673-1685.
    2. Khemraj, Tarron & Pasha, Sukrishnalall, 2011. "Monetary sterilization and dual nominal anchors: some Caribbean examples," MPRA Paper 34503, University Library of Munich, Germany.
    3. Koffie Ben Nassar & Edder Martinez & Anabel Pineda, 2014. "Determinants of Banks' Net Interest Margins in Honduras," IMF Working Papers 2014/163, International Monetary Fund.
    4. Anthony Birchwood & Michael Brei & Dorian Noel, 2016. "Bank interest margins and regulation in Central America and the Caribbean," Working Papers hal-04141575, HAL.
    5. Khemraj, Tarron & Hinova, Diana, 2011. "Elected Oligarchy and Economic Underdevelopment: The Case of Guyana," MPRA Paper 29733, University Library of Munich, Germany.
    6. Birchwood, Anthony & Brei, Michael & Noel, Dorian M., 2017. "Interest margins and bank regulation in Central America and the Caribbean," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 56-68.
    7. Mamingi, Nlandu & Boamah, Daniel O. & Jackman, Mahalia N., 2011. "Bahamas and Barbados: empirical evidence of interest rate pass-through," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    8. Ms. Laura Valderrama & Mr. Wendell A. Samuel, 2006. "The Monetary Policy Regime and Banking Spreads in Barbados," IMF Working Papers 2006/211, International Monetary Fund.
    9. Colin Cannonier & Monica Galloway Burke, 2017. "Tourism and financial development in small states," Tourism Economics, , vol. 23(6), pages 1369-1377, September.
    10. GRENADE, Kari & MOORE, Winston, 2008. "Co-Movements Between Foreign And Domestic Interest Rates In A Fixed Exchange Rate Regime: The Case Of The Eccu And The Us," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 119-130.
    11. repec:dau:papers:123456789/3369 is not listed on IDEAS
    12. Cecilia Maigua & Gekara Mouni, 2016. "Influence of Interest Rates Determinants on the Performance of Commercial Banks in Kenya," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(2), pages 121-133, April.
    13. Khemraj, Tarron, 2010. "The simple analytics of oligopoly banking in developing economies," MPRA Paper 22266, University Library of Munich, Germany.
    14. Leonardo VERA & Luis ZAMBRANO‐SEQUÍN & Andreas FAUST, 2007. "The Efficiency‐Stability Trade‐Off: The Case Of High Interest Rate Spreads In Venezuela," The Developing Economies, Institute of Developing Economies, vol. 45(1), pages 1-26, March.
    15. Mr. Fazurin Jamaludin & Mr. Vladimir Klyuev & Anuk Serechetapongse, 2015. "What Drives Interest Rate Spreads in Pacific Island Countries? An Empirical Investigation," IMF Working Papers 2015/096, International Monetary Fund.
    16. Tarron Khemraj, 2007. "What does excess bank liquidity say about the loan market in Less Developed Countries?," Working Papers 60, United Nations, Department of Economics and Social Affairs.
    17. Khan, Mehwish Aziz & Kayani, Ferheen & Javid, Attiya Yasmin, 2011. "Effect of Mergers and Acquisitions on Market Concentration and Interest Spread," MPRA Paper 37311, University Library of Munich, Germany.
    18. Simpasa, Anthony, 2010. "Characterising market power and its determinants in the Zambian banking indudstry," MPRA Paper 27232, University Library of Munich, Germany.
    19. Koffie Nassar & Edder Martinez & Anabel Pineda, 2017. "Determinants of Banks’ Net Interest Margins in Honduras," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(7), pages 5-27, May.

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